Question: What Do I Need to Know About the Lease Before Buying a Business?
Answer:Before buying a business, there are a number of issues relating to the lease for the premises that you will need to consider.
Is it an Existing Lease or a New lease?
Prospective buyers should ask the following before purchasing a business that operates from a fixed premises:
- Will the business remain in the current premises?
- Is there a current lease over the premises? If so, ensure you obtain a copy.
- Will the existing tenant need to transfer the lease?
- If the lease has expired or you want to vary the lease, do you need to negotiate a new lease directly with the landlord?
Key Terms of Leases
Before signing a new or existing lease, you should determine:
- How is the rent paid?
- Is the rent reasonable for the area and premises?
- How will the rent increase?
- What are the make good requirements?
- What sort of security will be required (i.e. personal guarantee, bank guarantee, etc.)?
Is it a Retail Lease or a Commercial Lease?
State-specific legislation covers retail leases providing retail tenants with additional protections. For instance, there are a number of limitations on a landlord’s ability to withhold consent to an assignment of a retail lease that doesn’t apply to commercial leases. Retail leases typically apply to retail storefronts, although other spaces may also be covered (e.g. warehouses).
Who Covers the Costs?
Outgoing tenants are typically expected to cover the costs of the assignment but may look to pass them on to the purchaser/incoming tenant by way of a contract for sale of business.
