If you have a business that relies on a particular location, that location may be a big draw in any sale. A business owner who owns the property on which their business is located, can simply include the commercial property as part of the sale. However, for many business owners the commercial property is leased, which means a third party will become part of the sale of their business.
Most contracts state that the tenant must gain the consent of the landlord before assigning a lease. The landlord must not ‘unreasonably’ withhold or delay consent, but unreasonable can be a very subjective term, so you should take steps to ensure the process goes smoothly.
Understanding the Small Print
The first step is to check your lease. This should detail in what circumstances the lease must be assigned. It may also contain details about how to notify your landlord and the documentation required.
Ensure you follow any instructions contained in your lease. A recent case in the UK ended badly for the business owner, as he sent notification via email when the lease required the notification to be received via post.
Communicate Early and Often
Communicate with your landlord early and regularly. If you communicate your intentions as soon as you have a buyer, the timer on that ‘unreasonable’ clock begins ticking a lot sooner.
Keep the lines of communication open with the seller and any solicitors working for the parties. Your landlord will be deciding if your prospective buyer can take over the lease; open communication between them will be essential in helping your landlord make the decision.
Know What Documentation Is Required
Your landlord may require evidence that the new owner will be able to meet the obligations of the lease. It will be up to the buyer to provide this information, but it is good to be able to provide them with a list of what is required.
Documentation requirements might include financial information, work experience or a resume to prove the new owner has the experience to run the business properly, identification documents and professional references. Providing thorough documentation helps your landlord make a decision quickly.
If the landlord consents to the assignment of the lease, get it in writing and have it witnessed by all parties’ solicitors to ensure the terms are understood by all.
More Small Print
It’s important to understand that assigning a lease does not release you from the terms of the lease. If the new owner stops paying rent, you may still be liable. If the lease has any terms of renewal and the new owner chooses to renew, your liability may continue through the renewals.
There are options to avoid this. Option one is to end your lease with the landlord and allow the new owner to directly negotiate a new lease. This may not be an option if there is a long time left on the lease, and there may be consequences to you if you choose to end the lease early.
Option two is to obtain agreement that your guarantee ends at the end of the lease and won’t include any renewal terms.
When having assignment documentation written up, ensure that it includes language that allows you to recoup any payments made on behalf of the new owner. Have your lawyer take action to minimise your indemnity as much as possible.
The location of your business can be a very important part of its success, so the lease can be a big part of the sale. If consent to assignment of the lease becomes a problem, it can be a barrier to the sale. However, with open communication between all parties, consent to assignment of the lease will be just one more step in selling your business.
