In this article we will discuss how leases factor into a business sale. If you are planning to buy or sell a business that involves a lease, it may lead to an extra level of complication. In the case of a restaurant or retail establishment, the location is vital to the success of the business. If you are buying a business, make sure any lease problems you might encounter are straightened out before you sign on the bottom line. You will still want to resolve all the details about your lease ahead of time, even if you are buying a business that isn’t location-sensitive. Here are some ways that leases factor into a business sale.
Negotiating a Lease
Have a clear way out of the lease in the near future if you are buying a business with a lease. With a business so new to you, you might make changes in the short term. The general recommendation is to negotiate a one-year lease that has an option for a longer period of time.
The buyer of a business with a lease will find that he or she does not have too much leverage. If the lease is close to its expiration date or the business is performing poorly, buyers typically find that there is more opportunity to negotiate.
Future Contingencies
Think about the big picture when you are first negotiating your lease. For example, you might want to confirm that no future tenants will be allowed to move in and be your competition if your business is in a mall. Some businesses located in shopping centers seek to outline a reduction of rent if the shopping center’s anchor store were to close. If this happens, it could negatively impact the business.
You will also want to think about the far-off future when you would like to sell the business. You will want to make sure that the landlord allows for lease transfers. You will also want to confirm the requirements necessary for a potential transfer.
Another thing to consider is what if the property did become available in the future? You might want to negotiate the option to potentially buy the property if this were to occur. You might find yourself in an unfortunate situation when you are forced to move your establishment.
Basics for Your Lease
A lease should always outline your responsibilities as well as those of your landlord. You should review the lease with your attorney. You need to thoroughly understand all the terms. It should cover various issues that might arise in the future and how they will be handled. For example, what if there were a fire or disaster. Who would pay to rebuild the building? How are the taxes, fees and maintenance handled for the property?
In some situations a landlord’s lack of flexibility with a lease has ruined a deal. If a landlord is unwilling to agree to a new lease or offer concessions to an ongoing one, buyers often will find the situation too restrictive. In some instances sellers have been willing to offer concessions to buyers to counterbalance issues with a lease.
The fate of your business could literally depend on your lease. If you set things up correctly in the beginning, it will most likely benefit you tremendously in the long run. Contact EBIT Associates to help guide you through the process of selling your business.