VIDEO: Transferring a Lease When Selling a Business

Selling a business can be challenging at the best of times and numerous potential issues can arise during the transaction. 

When the sale of a business also includes the transfer of a lease, there are additional considerations. 

Speaking to a lawyer who has experience in this area will be important.   They can guide you through the process and ensure you consider all the relevant issues.

Is the lease transferable?

You will need to review your lease agreement to determine whether it even allows for the transfer of the lease to a new owner. Many leases may have specific provisions or restrictions regarding the transfer process. In some instances you may need to contact your landlord or property manager to discuss the possibility and requirements of transferring the lease. The result will depend on whether you have a retail lease or not.

Do you have landlord consent?

You need to obtain written consent from your landlord before you proceed with a lease transfer. Initiate early communication with your landlord but consider the optimal time to disclose to your landlord your intention to sell the business and transfer the lease.   Whilst establishing open and transparent communication from the beginning can help prevent misunderstandings or disputes later on, you may need to first consider whether your lease is attractive to a potential buyer. This may involve negotiating a variation, extension or renewal of your lease. 

When you find a potential assignee, most landlords will want to review the financial stability and suitability of the new business owner before agreeing to the transfer.

What are the lease terms?

Evaluate the terms and conditions of your lease agreement, including the duration, rental rate, renewal options, and any obligations or responsibilities associated with the lease. Consider how these terms may impact the sale of your business and discuss them with the potential buyer where necessary. For example, you may have been granted an option to renew which requires exercising during the sale negotiation or settlement period. An experienced lawyer will be able to explain the potential impact and what it means for you, and the buyer.

Are all of your records and paperwork in order?

You will need to ensure that all of your lease-related documents, correspondence, and agreements are organised and collated throughout the sale and lease transfer process. This includes copies of lease agreements, consent letters from the landlord, essential license agreements and any communication exchanged between parties in relation to exclusivity of use, rent concessions and other matters. Proper record keeping will help in resolving any future disputes by providing a clear trail of events and agreements.  Your lawyer can provide advice as to what might be required.

Do you understand your liabilities?

Determine the extent of your liability for lease obligations after the transfer. In some cases, you may remain liable for the lease if the new owner defaults.

To determine your specific liability in a lease transfer, consult with an experienced commercial lawyer who can review your lease agreement and provide advice based on your specific circumstances.

Has the buyer conducted their own due diligence?

Discuss the lease transfer with the potential buyer during the negotiation process of the sale and make sure that they understand the terms and obligations of the lease, including any potential limitations or restrictions.

Provide them with copies of relevant lease documents and communicate openly about any potential risks or issues. Address any concerns they may have about the lease agreement and ensure that they are willing and able to assume the lease obligations. Be honest and upfront with the potential buyer so that you can work out any ‘sticking points’ before signing on the dotted line.  This will minimise the chances of getting caught in a dispute down the track!

What are the financial implications of transferring the lease?

Assess the financial impact of the lease transfer on the sale of your business. Consider whether the lease terms are favorable and competitive for the buyer and whether any lease-related costs (e.g., security deposit, lease assignment fees) should be factored into the sale price.

So what next?

Most importantly, seek professional guidance from an experienced commercial lawyer if you are thinking about a lease transfer.

At Maclarens we can guide you through the entire process, negotiate on your behalf and identify any issues that may cause problems in the future.  Spending a little extra time and money making sure everything is right BEFORE you transfer a lease can potentially save a lot of time and money spent in the court trying to resolve a dispute AFTER signing!

Contact the commercial team at Maclarens today for more information.