The Often-Overlooked Importance of Leases
When buying or selling a business, it is critically important that you evaluate the lease. It is a strange phenomenon that otherwise savvy business people will treat leases as a secondary concern. However, a lease’s problematic terms can force you to pack up a business and move. This would not only be a jarring experience but a very costly one.
Finding a good location is of paramount importance to your business’s profile and profitability. You may feel that there are more important issues when buying or selling a business. But by the end of this article, you’ll see the wisdom in placing a lease near the top of your “to evaluate” list.
There are three kinds and types of leases: a new lease, an assignment lease, and a sublease. All three of these options are most definitely different from one another and can potentially impact your business differently.
The New Lease
Buyers should ensure they have a lease in place before buying a business. As the name indicates, a new lease is the result of an expired lease. The buyer must work with the landlord to establish a new lease. Buying a business only to discover that you don’t have a lease and the landlord isn’t interested in keeping your business at its current location is a shock that no business owners want to encounter.
Assignment of Lease
The second type of lease is the assignment of the lease; this form of lease is quite common. It involves the buyer of a business being granted the use of the location where the business is currently located and operating. Through the lease assignment, the seller can assign the buyer the rights associated with the lease. Of course, it is essential to remember that the seller is not acting as the landlord but can assign the lease instead.
The third option for lease is the sublease. The sublease is a lease within a lease and comes with some important distinctions that must be understood. A sublease generally requires the landlord’s permission, and that permission should not be viewed as a “foregone conclusion” or “automatic.”
The bottom line is that no new business owner wants to discover that their new business doesn’t have a home. There are an array of critical issues to work out when buying a business, and it is critically vital that buyers never overlook what kind of lease is involved. A savvy seller will highlight their lease type, especially if the terms are favorable. But buyers should always be proactive, ask questions about the lease’s status, and ensure that lease terms are clearly defined.
Copyright: Business Brokerage Press, Inc.
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