The Law Offices of Paul H. Appel – Your Trusted Business Law Partner in New Jersey
Mergers & Acquisitions · Premises
For restaurants, retail shops, salons, practices and many service businesses, the location is the business. The sale cannot close on sensible terms until the buyer's right to stay there is secured and the seller's exposure under the lease is dealt with.
The landlord is a party
Most commercial leases restrict assignment without the landlord's consent, which means a landlord who is not part of the negotiation can delay the closing, demand new terms, or — under some leases — refuse altogether.
Buyers and sellers routinely agree price and terms first and only then approach the landlord, discovering weeks later that the lease has three years left, a recapture clause, or a requirement that the new tenant meet financial tests it cannot meet. By then the closing date is in the letter of intent and everyone is under pressure.
The firm treats the lease as a critical-path item from the first offer: reading it before the price is fixed, planning how and when to approach the landlord, and making the outcome a condition of closing. The general mechanics of assigning or subletting a lease are explained on the commercial lease assignment page; this page focuses on how the lease fits into a business sale.
Three routes
Which route applies depends on the deal structure and on what the landlord will agree to.
| Route | How it works | Watch for |
|---|---|---|
| Assignment to the buyer | In an asset purchase, the seller assigns its lease to the buyer with the landlord's written consent | Seller and its guarantor often remain liable unless released; consent letter may add conditions |
| New lease | The landlord and buyer sign a fresh lease and the seller's lease ends at closing | New rent and terms can change the economics of the deal; timing must match the closing |
| Change of control | In a share or membership-interest purchase, the tenant entity stays the same | Many leases treat a change in ownership as an assignment requiring consent anyway |
Structure is chosen for many reasons beyond the lease; the trade-offs are compared on the asset vs. stock purchase page.
Lease terms that matter in a sale
Term
A buyer paying for goodwill tied to a location needs enough lease term to recover that investment. Check the expiry date, whether renewal options exist, and whether those options are personal to the original tenant or pass to an assignee.
Consent
Some leases say consent will not be unreasonably withheld; others give the landlord sole discretion. The wording determines how much leverage the landlord has and what conditions it can attach.
Recapture
A recapture clause may let the landlord end the lease, rather than consent, when the tenant asks to assign. That can put the whole location in play and should be identified before the business is marketed.
Money
Leases may allow rent increases on assignment, require the landlord to share in any premium paid for the lease, or need the security deposit replaced by the buyer while the seller's is returned.
Use
If the buyer plans to change or expand what the business does, the permitted-use clause and any exclusive granted to another tenant must allow it.
For sellers
Many small-business owners signed a personal guarantee when the lease began. Selling the business does not automatically end it. If the lease is assigned and the landlord does not release the seller and the guarantor, a buyer's later default can come back to the original owner years after the sale.
Sellers should ask for a written release as part of the landlord's consent, or at least negotiate limits: a guarantee that ends after a period of on-time rent, a cap, or a replacement guarantee from the buyer's owners. Where the landlord will not release, the purchase agreement should include an indemnity from the buyer — ideally backed by its principals — and the seller should understand the residual risk before signing. The lease is one of several consents managed within the firm's wider business purchase and sale representation.
Before closing
A buyer negotiating a fresh lease for the location should treat it as a separate negotiation with its own priorities; the firm's lease review and negotiation service covers that process.
Questions & answers
The landlord is not approving the sale itself, but if the lease restricts assignment, the landlord's consent is needed to move the lease to the buyer. Many leases also treat a change in ownership of the tenant as an assignment. Read the assignment clause before marketing the business, because it decides how much control the landlord has over your timeline.
Sometimes. A new lease lets the buyer negotiate its own term, renewal options and rent, and gives the seller a clean exit. But landlords may use the opportunity to raise rent or change terms, which affects what the business is worth to the buyer. The right choice depends on the existing lease and the landlord's position.
Possibly. An assignment usually leaves the original tenant and any guarantor liable unless the landlord agrees to release them. Sellers should negotiate a release as part of the consent, or limits on continuing liability, and should have the buyer indemnify them in the purchase agreement in case of a later default.
Not reliably. The tenant entity does not change in a stock or membership-interest sale, but many commercial leases define a transfer of a controlling ownership interest as an assignment that requires consent. Proceeding without consent where the lease requires it can put the tenant in default, so the clause should be checked before choosing the structure.
Your attorney
Every matter at the firm is handled personally by Paul — the same attorney reads the documents, gives the advice and negotiates on your behalf.
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Describe what the business is dealing with — a contract on your desk, a deal in progress, a dispute or a company you are about to form. You will hear back from the attorney who handles the work.
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