By Bruce Pockrandt, CBI
Managing Broker, Truforte Business Group
If your Florida business depends on its location, your lease can become one of the most important documents in the entire sale.
A profitable business with an interested buyer can still run into serious problems if the buyer cannot obtain acceptable rights to remain at the location.
That is why I encourage sellers to review their lease before putting the business on the market.
Consider a restaurant, salon, automotive shop, retail store or medical practice.
Part of what makes the company valuable may be its location.
Customers know where it is.
Employees know where to report.
Equipment may be expensive to relocate.
Licenses or permits may be connected to the premises.
If the buyer cannot remain there, the economics of the acquisition may change substantially.
One of the first things buyers may examine is the remaining lease term.
Suppose a buyer is considering a substantial investment but only eight months remain on the lease.
The buyer may ask:
What happens after eight months?
Will the landlord renew?
At what rent?
For how long?
Can the landlord require major changes?
Uncertainty creates risk.
Don’t simply tell your broker, “The landlord will renew.”
Read the lease.
Does it contain renewal options?
How must they be exercised?
When is notice required?
How is future rent calculated?
A written contractual option is different from an informal understanding with the landlord.
Some leases allow assignment with landlord approval.
Others impose conditions.
Some may provide the landlord with substantial discretion.
The exact language matters.
Have your attorney review provisions you do not understand.
The worst time to discover an assignment problem is a few days before the expected closing.
Landlord involvement must also be balanced against confidentiality.
You may eventually need the landlord’s cooperation, but timing matters.
Discuss with your broker and attorney when the landlord should be approached and what information should be shared.
Every transaction is different.
Sometimes a landlord prefers to negotiate a new lease directly with the buyer rather than assign the existing one.
That creates another negotiation running alongside the business transaction.
Rent, term, options, security deposits, guarantees and permitted use can all become important.
If the buyer and landlord cannot agree, the business sale may be affected.
Many commercial leases contain personal guarantees.
Sellers should understand whether they will be released after an assignment or new lease.
Don’t assume your responsibility disappears simply because you sold the business.
Have your attorney review the documents and confirm how your obligations are being handled.
Buyers evaluate occupancy costs as part of the company’s financial picture.
A business paying below-market rent may look attractive—but buyers will want to know whether that rent continues.
A large rent increase after closing could reduce future cash flow.
Conversely, a long-term lease with reasonable terms may give buyers more certainty.
Before marketing a location-dependent business, gather:
Your broker and attorney can then identify questions before a buyer does.
Business owners naturally focus on revenue and profits when preparing to sell.
But for location-dependent companies, the lease can be just as important.
A strong business with a clear path to continued occupancy may give buyers confidence.
A business with an expiring or problematic lease may create uncertainty precisely when you are trying to get a transaction closed.
Review it early.
Related reading: How to Sell a Business in Florida: A Step-by-Step Guide and selling a business with Truforte.
Possibly, but a short remaining term can create uncertainty for buyers. Addressing renewal or future occupancy early may make the business easier to market.
That depends on your lease and transaction structure. Review the assignment and change-of-control provisions with qualified legal counsel.
Not automatically. The right strategy depends on the lease, rent, location, buyer needs and your attorney’s advice.
Do not assume it disappears at closing. Your attorney should review the lease and any release or replacement arrangements.
Bruce Pockrandt, CBI, is Managing Broker of Truforte Business Group and helps Florida owners prepare, market and navigate the confidential sale of privately held businesses.
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