Selling your business with an existing lease? How does having rental property impact the sale?

external view of building

The sale of a business can come with several nuances. The key to selling your business in San Diego is understanding what to expect and what can become roadblocks. For one, if your business has an existing lease, a landlord might have something to say about transferring the lease to a new owner. Like anything else, there are pros and cons to being a renter as an entrepreneur. Let’s take a closer look.

Before anything else, your first step should be to read and fully understand your lease agreement. There is going to be legal verbiage but it contains stipulations that you need to understand and keep in mind. The guidance of a lawyer and/or business advisor could prove to be invaluable at this point as they will understand any terminology you are not familiar with.

You will also need to ask yourself a few questions, such as:

·       Is the current lease in good standing? You will need to inform your landlord that the lease will need to be transferred to the new ownership. But, if money is owed or there are any outstanding issues with the lease, the landlord could kill the deal before you have the chance to do anything. It’s in everyone’s best interest to ensure the lease is in good standing.

·       Do you have landlord approval? Does the lease have an existing transfer clause? As the name suggests, a transfer clause allows you to transfer a lease to a new owner, but most often has a requirement that the landlord approves the new tenant and the transfer You cannot sell your business until you have landlord approval. Generally, the landlord cannot withhold consent to a transfer unreasonably. They will likely require information about the buyer to determine if they will be a worthy tenant capable of fulfilling all the terms of the lease. Notifying them at the right time is a must in order to remain in good standing. Failure to inform them means they can easily halt the sale at any point, and set you back financially.

·       Do you have 10 years left on the lease? For a buyer to receive an SBA loan, they must have at least 10 years remaining (including options to renew) on a lease to match the usual 10-year SBA loan amortization period. If the options are not already in place, you can speak to your landlord before listing your business for sale. This would make your business look very attractive to potential buyers.

·       Does your lease have a personal guarantee? This is an important one if you have plans to transfer the lease. Although the lease is under a new name, the original clause for personal guarantees may still stand. Therefore, if the new owners break the lease or do not pay the rent, the landlord can still come after your estate. It is important that you consult your advisors about the best way to deal with ongoing guarantees. There may be circumstances where the landlord may agree to forgo your continuing guarantee. You’ll want to get this straightened out ahead of time.

Of course, a business sale comes with several steps and requirements to ensure a profitable and smooth transition for all parties involved and the lease is just one of them. The best way to ensure all has been considered is to hire a business advisor who has experience in your industry and your geographic area. A knowledgeable business broker brings a lot to the table – most importantly, they should be able to give you peace of mind as they walk you through the sale of your business. No page remains unturned for a business broker with Transworld Business Advisors San Diego North.

Contact us today! You can be one step closer to selling your business and embarking on your next personal or professional endeavor before you know it.