Question: How Does a Tenant Transfer a Lease When Selling a Business?Answer:
When you sell a business, any existing lease for the shopfront must also change hands if the incoming tenant intends to run their business from the same location. A lease is often separate from a business sale contract and does not automatically transfer to the new business owner. The transfer process is called an assignment.
Who is Responsible for Seeking Consent?
The outgoing tenant will make an application for transfer. To successfully assign a lease from one party to another, the landlord of the premises must:
- receive an application from the outgoing tenant and the prospective incoming tenant;
- check the prospective tenant’s references and business skills;
- provide consent; and
- prepare the appropriate documentation.
Assigning a Retail Lease
A landlord can only refuse their consent on a limited number of reasonable grounds. These grounds vary state by state depending on the relevant retail lease legislation and generally relate to either:
- the incoming tenant’s finances (i.e. their capacity to pay rent); or
- issues with their character.
Assigning a Commercial Lease
The landlord has greater discretion to refuse any proposed transfer of a commercial lease. The assignment clause in the lease for the premises will dictate the terms of the proposed assignment. Note that some commercial leases expressly prohibit assignment under any circumstances.
What Steps are Involved in an Assignment?
It is the tenant’s responsibility to initiate the assignment process. For retail leases, the landlord must comply with various time frames.
Who Covers the Legal Costs?
It’s common for a tenant to reimburse a landlord for the costs because they initiate the assignment application.