The short version
- Buyers and lenders treat the lease as critical for any location based business.
- Landlord approval can take about two months.
- Look for assignment language that says consent cannot be unreasonably withheld.
- Ask your attorney about personal guarantees.
Why buyers read the lease
A buyer cannot pay for a business that might lose its location. Lenders usually want years remaining on the lease, and some require the landlord to sign off on the transfer.
Assignment and approval
Look for language that says the landlord cannot unreasonably withhold consent to an assignment. Without it, the landlord may hold the sale hostage. In one example approval took about two months, so start early.
Rent and renewal
Fixed base rent is easier to value than percentage rent, where the landlord takes a share above sales targets. Renewal terms should state a rate, not simply say market at renewal.
Month to month occupancy or below market rent both worry buyers, because they price the business at market rent.
Liens and guarantees
Landlords or lenders may ask for a lien subordination, which sets who takes assets first if the buyer defaults. Attorneys negotiate it, and it can hold up a loan closing.
Personal guarantees can survive an assignment, so ask your attorney about getting released.
Timing and expectations
Landlord review adds weeks to a sale, so a lease that needs consent can push closing past the usual seven to nine months.
Keep sales steady while you wait. Buyers watch trends right up to closing.
What to do before you list
Pull the lease and read the term, the renewal rate, the assignment clause and any guarantee. Ask your attorney to mark anything a buyer might object to.
If you own the building, ask for a separate market rent opinion, since a below market lease can lower the price of the business. Then request a price range with the lease details ready.
Next steps
Read what buyers pay for a restaurant or UCC lien searches. Then request a price range.