Leases can significantly impact the buying or selling of your business. However, they are often overlooked in favor of more high-profile particulars. Leases are a common expense in many businesses and should not be ignored. In this article, we will explore some of the basics of leases so that you can gain a better understanding of how they work.
Leases and Working with Your Attorney
In general, there are three types of leasing arrangements: full pay, modified pay, and net lease. If you’re not sure which type of lease you have, or if you have any questions about your lease, then you should consult with your attorney. Keep in mind that the advice in this article shouldn’t be used as legal advice. But it can give you a better understanding of what to expect when working with leases.
Three Different Lease Options
When it comes to leases for your business, there are three main types you need to be aware of: the sub-lease, new lease and assignment of lease. Each one of these leases has different implications for your business. It’s important to understand the differences before you sign anything.
The Sub-Lease
One such type is the sub-lease. As the name suggests, this is a lease that takes place within another lease. In most cases, the seller is permitted to sub-lease the property, and it’s important to note that the original landlord still has a binding agreement with the seller. If you’re looking to sub-lease, it’s always best to get permission from the original landlord first.
New Lease
A new lease is created when the previous lease expires or needs significant change. This can include a change in ownership, a change in use, or an increase or decrease in the amount of space leased.
Assignment of Lease
The assignment of a lease is the most common option used. This allows the buyer to use the premises where the business currently exists. The seller “assigns” all rights of the lease to the buyer. Once this takes place, the seller typically has no further rights. It’s also common for the landlord to have wording in the contract that states the seller is still responsible for any part that the buyer doesn’t perform as expected.
Disclose All Lease Issues at the Beginning of the Sales Process
No one likes surprises, and potential buyers will likely be turned off if there are problems with your lease. If you can’t provide the buyer with a stable location, that’s definitely an issue that needs to be resolved before putting your business up for sale. Buyers don’t like instability and unknowns, so it’s important that you’re transparent about any potential lease issues from the beginning of the sales process.
Make sure to understand the basics of leasing. This will help you make a smooth transition from buyer to owner/operator. The location of the business and lease terms can be one of the key issues involved in buying or selling a business. By working with a business broker, you can get clarity on any leasing issues and achieve optimal results.