In this post, we will address five key questions about negotiating a commercial lease when selling a business. These are questions that every business owner in California should be aware of.
In this post, we will address five key questions about negotiating a commercial lease when selling a business that every business owner in California should be aware of.
- To ensure your business sale proceeds smoothly, the best strategy is to review the written lease first. Key items to review include the lease’s expiration date and whether the lease provides for options to renew the lease. You should also check the specific terms. As the business owner or lessee, consider whether you can have the lease assigned or subleased. If so, are you comfortable with the legal responsibilities this entails?
- When Should You Speak with Your Landlord When Selling Your Business?
- As the Seller of the business, now that you know the status of the lease, your main question may be whether to speak with the landlord now or wait till you get a qualified Buyer. Because there are numerous moving parts involved in selling and buying a business, I would recommend starting sooner rather than later.
- Some other reasons to discuss the lease early with the landlord include determining what rent schedule may apply if the lease is going to expire. The recession has been prolonged and hurtful to many business owners, including landlords. There may be numerous nearby vacancies for the type of space you are looking to rent. As a result, the monthly rent cost has decreased. This information may influence your decision about whether to sell your property. Therefore, obtaining it can be constructive.
- Being Prepared When Selling Your Business In California
Your first reaction is probably to ask why someone selling their business would want or need to negotiate with their landlord. There are several compelling reasons, including the following.
Why Negotiating with Your Landlord is Important When Selling Your Business
The first and probably most important reason to negotiate with your landlord is that the number one reason the deal breaks down between a Seller and a Buyer is that the landlord kills the deal. As the owner of the business, you have built numerous valuable assets within your organization.
If you rent or lease the real estate from which the business operates, and you have a written lease, you will almost always need the landlord’s permission to transfer the lease. Also, if your lease is about to expire, it’s a good idea to speak with the landlord to understand their intentions once the lease ends. Furthermore, if you do not plan to renew the lease, it is crucial to talk with the landlord, as they may have already begun looking for a new tenant.
Alternatively, the landlord may have decided not to renew your lease and may intend to operate the same type of business from your location.
If this occurs, it will almost certainly damage the value of your business and necessitate changes to the plans you have for selling.
Reviewing Your Commercial Lease When Selling Your Business
To ensure your business sale proceeds smoothly, the best strategy is to review the written lease first. Key items to review include the lease’s expiration date, whether the lease provides for options to renew, and the specific terms of the lease. As the business owner or lessee, are you able to have the lease assigned or sub-leased? If so, are you comfortable with the legal responsibilities this entails?
While reviewing the lease, it would be worth checking if there is a fee for the landlord or their agent to process the transfer of the lease from the Seller to the Buyer. Furthermore, if a fee is applicable, determine who is responsible for paying it. Invariably, the Seller will make the actual payment to the landlord.
However, the Seller may require the Buyer to pay the fee if the landlord approves the Buyer and then the Buyer decides not to proceed with the purchase of the business.
When Should You Speak with Your Landlord When Selling Your Business?
As the Seller of the business, now that you know the status of the lease, your main question may be whether to speak with the landlord now or wait till you get a qualified Buyer. Because there are numerous moving parts involved in selling and buying a business, I would recommend starting sooner rather than later.
There are many reasons, and the main one includes understanding what, if any, the landlord’s plans are. As mentioned earlier, the landlord may decide to let your lease expire and operate their own business from your location. Hopefully, the lease you signed prevents that from happening. However, the earlier you know the situation, the better position you are in to deal with it.
Other Reasons to Talk with Your Landlord Early When Selling Your Business
Some other reasons to discuss the lease early with the landlord include determining what rent schedule may apply if the lease is going to expire. The recession has been prolonged and hurtful to many business owners, including landlords. There may be numerous nearby vacancies for the type of space you are looking to rent. As a result, the monthly rent cost has decreased. This information may influence your decision about whether to sell your property. Therefore, obtaining it can be constructive.
Another reason is that the landlord’s situation may have changed, and they may be willing to negotiate a new outcome with you. For example, the landlord now may have an interest in selling the real estate. With this knowledge, you may choose to purchase the real estate. Then either continue to operate the business or become a landlord, negotiating the terms of a new lease with the Buyer of the company.
There are several obvious reasons, as well as a few less obvious ones. The current landlord may face health issues, succession planning challenges, tax concerns, regulatory compliance issues, zoning concerns, and maintenance and upkeep problems, among other challenges.
Additionally, the landlord may be working with a commercial real estate agent to broker a transaction. This may be the point of contact for the landlord, so any Buyer you find would need to work with this party or a property management company.
Being Prepared When Selling Your Business In California
Following the Boy Scouts’ motto of “Always be prepared,” when selling a business is a good and helpful approach.
If selling your business is an option you’re considering, this link provides a concise summary of the key steps involved in the process.
When you collaborate with a business brokerage firm in California, it will provide all the solutions and insights necessary to maximize the benefits of the business sale.
If selling your business is an option you’re considering, this link provides a concise summary of the key steps involved in the process.
When you collaborate with a business brokerage firm in California, it will provide all the solutions and insights necessary to maximize the benefits of the business sale.
There are only a few ways to sell and value a business quickly in California, and an experienced business broker like Andrew Rogerson can guide you through the best strategy. With a certified business intermediary by your side, we are confident that you will sell your business in California quickly and at the highest possible price.
Andrew Rogerson is a certified business broker based in Sacramento, California. Call Toll-Free at (844) 414-9700 or email him at support@rogersonbusinessservices.com. Services the whole state of California.
About other factors to consider
Commercial Real Estate Valuation
Commercial Real Estate Due Diligence
Commercial Real Estate Finance, Taxes, and 1031 Exchange
Commercial Real Estate Escrow
