Is your short lease term affecting the sale of your business

If you are planning on retiring or leaving your business soon, having just a short time remaining on your lease can give you a feeling of freedom, since you see the light at the end of tunnel.  However, what about selling your business to a buyer?  Will having very little lease term remaining be an issue?  Yes, in most situations it will be an issue.  For a buyer to complete the purchase of a business, an assignment of the existing lease is required.  However, If the remaining lease term is too short, then a new lease will be required, which requires additional negotiation between the buyer and the landlord.  This additional negotiation adds considerable uncertainty to closing the sale for many reasons.

A few of the reasons why are:

• Possible rate increase that is unacceptable to the buyer
• The landlord may refuse the buyer based on qualifications, since there is no additional guaranty from you.
• The landlord may have plans to lease the space to another business
• Possible changes in other terms of the lease, such as CAM/NNN charges that make the business less profitable for the buyer.

All of these factors are reasons that locking in a long term lease that is assignable is key to helping you facilitate the sale of your business for the best price/terms possible and in a more predictable and reliable sales process.  Just make sure the lease is reasonably assignable and that you limit your exposure on a personal guaranty after the sale is complete.

Simply put, having a good lease is an important aspect of Exit Strategy planning.  For further assistance with negotiating a commercial lease for your business, contact our Client Care Manager, Sonia Chhabra by telephone (888) 926-9193 or email cs@justelementary.com