How Your Commercial Lease Can Affect the Sale of Your Business
When I talk to business owners about selling, one of the questions I ask is pretty simple:
When does your lease expire?
You'd be surprised how many owners don't know the answer.
You can have a great business. Strong revenue. Good cash flow. A location that took years to build.
But if your lease expires in two years and you don't have an option, a buyer is going to have questions.
The lease may not show up on your P&L as a problem, but it can become a very real issue when it's time to sell.
How Much Time Is Left on the Lease?
A buyer wants to know they'll have a place to operate the business after closing.
If there's only a short amount of time remaining on the lease, that creates uncertainty.
Will the landlord renew?
What will the new rent be?
Will the buyer have to relocate?
Those questions can affect how comfortable a buyer is moving forward.
A business that's heavily tied to its location can be particularly sensitive to lease risk.
Do You Have Renewal Options?
Don't assume you'll be able to extend your lease just because you've been a good tenant.
Look at what's actually in writing.
Do you have renewal options?
How long are they?
How is the rent determined?
When do you have to exercise them?
These are details worth understanding well before you're thinking about a sale.
Can You Assign the Lease to a Buyer?
This is another provision business owners sometimes don't think about until there's already a buyer.
Your lease may require landlord approval before it can be assigned to someone purchasing the business.
There may also be financial requirements, guarantees, transfer fees, or other conditions that need to be satisfied.
Understanding those provisions early can help avoid surprises later.
Don't Wait Until You Have a Buyer
If your lease is important to the operation of your business, it's worth reviewing it now.
Know when it expires.
Know your renewal options.
Know what the lease says about assignment.
And understand what happens to the rent going forward.
You don't need to be planning a sale today for any of this to matter.
But you don't want to discover a lease problem after you've already found a buyer.
A good business can still have a bad lease.
And when it's time to sell, that matters.