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Volume
3; Issue 5
How Your Lease Affects the Value and
Salability of Your Company
Have you ever considered selling your business? If
your company is a tenant with a lease, be careful. You may discover your
landlord is also your silent partner. This happens when business owners
rush into a sale of the business without first understanding how their
lease will affect the buyer. It’s surprising but leases are one of the most
common roadblocks to selling a business.
Here are
some things you should understand before proceeding to sell.
- Is the lease assignable
to a buyer with or without the landlord’s prior approval?
- Is the lease terminated
if the company is sold? (The buyer would have to re-negotiate a new
lease.)
- Is a new lease based on
market rates at the time of renewal or some other formula?
- If an existing lease is
assignable, will it be acceptable to the bank that finances the sale?
Oftentimes, the bank requires the lease term to be the same as the
loan term.
A Real Life Example
Suppose you, as the owner of a restaurant, lease the premises and you
decide to sell the business. A few weeks before closing, the buyer’s
attorney reviews the lease and determines that there is a provision
requiring execution of a new lease if the existing company/tenant is ever
sold.
Many leases are written this way to enable the landlord to verify the
creditworthiness of the new tenant/owner, but there are other reasons as
well.
In this example, the landlord understands the restaurant is being sold and
that he is the only obstacle to the successful transition of ownership.
What if the landlord decides to increase the buyer’s rent by 25% or more?
What if the new lease includes a provision requiring the new tenant (buyer)
to be responsible for the condition and upgrades to the parking lot and
roof?
This latter issue arose last month in a deal a BizMACH Affiliate was
working on in which a national restaurant franchisee sought to take over
the lease of a competitor’s site to secure larger space. The landlord
agreed to terminate the existing lease but as a condition of acceptance is
requiring the new tenant to re-pave the parking area and replace the roof
at a cost of $300,000.
Always Consider the Long Term
When entering into a lease arrangement for a business, company owners must
always consider the lease implications relative to the eventual sale of the
business. This is especially important when the location of the business is
critical. Always consider the lease term and renewal options relative to
the future buyer of the business.
Preparing a company for sale involves many complex aspects that most owners
do not consider. One or more is sufficient to upset the sale so be sure you
use a professional advisor well in advance of selling your company.
Coming June 15,
2006!
New BizMACH services and a new, improved web site.
Be sure to check us out. www.bizmach.com
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BizMACH Affiliates are Experts in Small Business Transition
Strategies
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Call
us for a Free and Confidential Consultation. After all, you have spent a lifetime
building a company and sooner or later it will be time to cash out.
Wouldn’t you like to know where you stand today so you can determine
where you need to head tomorrow?
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POSITION FOR
TRANSITION
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BizMACH is an
association of highly skilled consultants, evaluation experts and merger
and acquisition specialists.
We take ordinary companies and create
extraordinary value.
Competitve
advantage is the key to revitalizing your company's growth and profitability.
Call us if
you'd like a free consultation and to learn how BizMACH can grow your
company and increase its value.
Solid Oak Consulting, LLC
522 South Elmwood Ave
Oak Park, IL 60304
708-524-0886
telong@solidoakconsulting.com
Accredited by the Institute for Independent Business
Contact Tom Long
If you're not working with BizMACH, you're not using the
BEST
Business Evaluation and Salability Tool
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