Selling Your Business Sometime in the Future – Don’t Forget About Your Lease
During the course of my time as a business broker there are a couple of themes/adages that are often heard when attending conferences or events frequented by those in my profession. Most deal with the ways/things that can bring the planned sale of a business to a screeching halt. One of these impediments is the lease that a business owner has, and potential actions of the landlord. A sad fact is that a great number of business sales don’t successfully close each year due to conflicts over lease terms and conditions. What makes this worse is that in some of these cases, a number of these pitfalls could have been avoided years earlier during lease negotiations.
Some things for consideration, not an all-inclusive list, and not in any order of importance:
- Have you sat down and read your entire lease? You might be surprised at how many business owners have not. Have you had an attorney review the lease? If not, this might be worth the investment.
- Do you know if there are any restrictions regarding lease assignment and subletting? The language that you will want to see is that while the lease may only be subject to assignment upon written approval of the landlord, the key verbiage you are looking for is that any assignment “will not be unreasonably withheld.” If this language is not part of your lease, you may want to consider negotiating with your landlord to get this clause included.
- Do you know who is responsible for the repairs and maintenance of your property?
- Most landlords will require that the Seller remain on the lease as a personal guarantor for at least the remaining term of the lease once the assignment is granted. Many business owners are not aware of this. This means that if the buyer defaults on payments to the landlord, you may be liable for the balance due.
- If you are like most business owners, you won’t want to hold a Seller’s Note, so an SBA Loan will be a goal. If this is the case, the bank will require that the length of the lease, including options, coincide with the length of the loan.
- Do you know what rent to sales ratio is for your business? In other words, do you know what percentage of your annual sales goes to pay your monthly rent? In most cases and most industries, we have benchmark data that lets us know what this percentage should be.
- Is there a lease assignment fee? If so, the Seller usually ends up paying this fee, which could vary from a few hundred to a few thousand dollars.
Thousands of businesses are bought and sold each year, and they almost all require lease assignment or negotiation with a landlord. Keep in mind that in many instances, the landlord may look at the lease assignment as a nuisance and bring with it risk, as your departure brings with it an unknown element, a new and unproven owner / tenant. The more planning and preparation you do up front in regards to your lease just might pay off when it comes time to sell your business.
Tim Bellon, Owner and Managing Broker: Tim was born and raised in North Dakota, and after the culmination of a 21+ year career in the U.S. Army, he and his wife Beth retired in Apollo Beach, FL. He earned his Bachelor’s Degree in History and Political Science from Concordia College, and a Master’s of Science in Defense Analysis from the Naval Postgraduate School.
Tim joined the VR Business Sales Team in 2012 as the owner and managing broker of an office serving the greater Tampa Bay, FL. During this time, he has focused on helping business owners realize their goals through selling, buying, or growing businesses. He also assists individuals, and companies looking to expand, in the identification and acquisition of businesses.
Tim is community oriented, and is a proud member of the following organizations; International Business Brokers Association (IBBA), Business Brokers of Florida (BBF), SouthShore Chamber of Commerce, Commercial Finance Association (CFA), American Legion, Disabled American Veterans (DAV), and the Knights of Columbus. Tim can be reached via email at TBellon@VRSouthShore.com.