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Purchasing a Business: Some Important Factors to Consider About Your Business Lease

The typical business purchase transaction involves the assignment of “leased property interests”, i.e., where the Seller of the business does not own the property and the seller, as a tenant, will assign the seller’s existing lease to you as the purchaser of the business. To do this, the landlord’s consent is almost always required. As a purchaser, at the outset of evaluating a business, you must evaluate the terms of the existing lease and determine the minimum guaranteed lease term, payment obligations and requirements necessary to ensure that your investment in the business will generate a sufficient rate of return. In evaluating a Seller’s leasehold interests, the following are some of the many initial questions and concerns that you should consider and discuss with your business attorney:

• The remaining term / number of years left on the lease;
• Will the landlord consider extending the term / number of years of the lease;
• What is the fixed base monthly rent;
• In addition to fixed monthly rent, are there any additional rent charges for expenses such as property maintenance, utilities and property taxes;
• If the lease is in a shopping center or strip mall, will the landlord agree not to lease space to a competitor;
• If the lease is in a shopping mall are there additional rent charges based upon a percentage of the businesses monthly or annual revenues.

When buying a business, always keep in mind that your lease agreement will constitute one of your most important “business assets”, so make sure you get it right and take an active step in communicating your business plans and expectations with your lawyer.

By: Charles N. Internicola, Business and Franchise Lawyer © - All Rights Reserved.

Charles Internicola, is a partner at the law firm of Decker Decker Dito & Internicola, LLP. and an author and speaker with a practice devoted exclusively to business and franchise law. Charles represents entrepreneurs, including first time business purchasers, start-up businesses and established non-public corporations in local, regional and national transactions and litigation. In New York, New Jersey and throughout the United States, Charles represents and consults with franchisees considering the purchase of a franchise and franchisors starting and managing a franchise system.

Charles is the author of the book “An Entrepreneurs Guide to Purchasing a Business” and the New York Franchise Law Blog, www.newyorkfranchiselaw.com.