What to consider when selling a business with a commercial lease
Selling a business with a lease on a commercial property from which the business operates will involve assigning the lease to the new owner once the business is sold. The sale must be handled with care as you must comply with the conditions set out in your tenancy agreement to gain consent from your landlord to transfer the lease.
We run through what defines a leasehold business, how to sell a business with a leased property and what conditions a landlord may set out for the lease transfer.
What is a leasehold business?
A leasehold business is a business with a lease agreement in place for a property that is used for business purposes. The lease element essentially means renting commercial property, such as the premises from which the business operates. Property tenure is a key determining factor for individuals looking to buy a business.
Can you sell a leasehold business?
A leasehold business can be sold, however, to ensure that the commercial lease survives the business sale, you must meet landlord expectations and respect any restrictions set out in the tenancy agreement to allow for the successful assignment of the commercial lease.
Alternatives to selling a leasehold business may include:
- Sell business without leased commercial property: If the lease is approaching expiry, you may choose not to renew or extend the lease if it makes the business more marketable. If a business that can be operated remotely or relocated is more attractive for potential buyers, you may choose to sell the business without the property element.
- Terminate lease: If a buyer wishes to purchase the business without the associated property, you may trigger the break clause to end the lease early which may incur a break fee.
- Renegotiate lease: You may choose to use this opportunity to renegotiate the lease to create a new lease with better terms.
- Sublease commercial property: Subleasing is when the original tenant rents the property to a subtenant, creating an offshoot agreement from the main lease. This route may be taken if the seller wishes to retain ownership over the property until full payment from the buyer is received.
Selling a leasehold business is straightforward under the guidance of a professional business broker with experience in selling businesses with real estate under their ownership, such as freehold and leasehold property.
- Previous sales and acquisitions experience
- Sector specialisms and average success rate
- Sales value expectations and growth potential
Can a business lease be transferred to another person?
When selling a leasehold business, the lease for the commercial property will be transferred to the new owner upon completion of the business sale. Assigning a lease means selling the lease to another person, in line with conditions set out by your landlord.
What happens when you sell a leasehold business?
When you sell a business with leasehold property, you will need to manage the process in an orderly manner to ensure no objections arise from the property landlord.
Official guidance for assigning a business lease agreement can be found in your tenancy agreement. The document will provide a breakdown of what conditions must be met to gain landlord consent for lease assignment.
Your landlord may specify special terms such as a notice period, approval period, preferred modes of communication, restrictions, and an assignment fee. Landlord consent may be subject to due diligence checks on the tenant. This may include a background check, credit check, character references and details of any changes in the use of the property.
If you sell a business with leased property and transfer the lease to the buyer, all tenant obligations will be passed to the new leaseholder. You may be required to sign an agreement that binds you to meet the obligations of the incoming tenant if they fail to uphold the agreement, also known as an Authorised Guarantee Agreement.
How can a business broker support the sale of a leasehold business?
The Selling My Business team of professional business brokers are experts in selling businesses with leasehold property, from the likes of cafes, post offices, and convenience stores, to kennels, catteries, and veterinary practices. We also work closely with commercial property solicitors to provide easy access to legal guidance from trusted providers.
For more information on how to sell a leasehold business or to arrange a free consultation, get in touch with a business broker at Selling My Business.