Navigating Lease Approval in South Florida Business Sales

By: Derek M. Jorgensen, Esq.

Understanding the Importance of Landlord Approval

One of the most overlooked roadblocks to completing a sale of a business is the lease. The parties have finalized the terms for the sale of the business–but if there is a lease involved, the landlord will virtually always need to approve an assignment of the lease to the buyer (or sign a new lease with the landlord).

The Process of Lease Assignment Approval

Due Diligence by Landlords: What to Expect

A landlord’s right to approve or disapprove the buyer is almost always in their sole and absolute discretion. In other words, they do not even need a good reason to disapprove a potential buyer. During a pending sale, the landlord will typically do their own due diligence to determine whether the buyer is going to be a good tenant. The landlord may inquire about whether the new buyer is taking on any debt to acquire the business and may examine the new buyer’s rent and credit history. These and similar questions are legitimate areas of inquiry for a landlord when evaluating a potential new tenant.

Assignment Fee Implications on Business Sale Closure

To account for the landlord’s time and cost in assessing new tenants, some leases have “assignment fee” provisions where the landlord is paid either a set fee or a percentage of the sale as a fee. Large assignment fees can have major implications on the closing.

Securing Release from Lease Obligations

If the landlord is going to agree to an assignment, the next step for the seller is to ensure they are released from the obligations of the lease. For the more difficult landlords, they may not want to release the previous tenant because if the new tenant has issues paying rent, the landlord can always go after the previous tenant. If there are any active personal guarantees against the current business owner, it is critical those are released as well.

If there is a lease involved with the sale of a business, getting a landlord’s approval is a necessity. For businesses with landlords that are difficult to work with, this can make or break whether the sale goes forward. For sales where landlords are uncooperative, we are often asked if selling the stock or membership units of the business will still trigger the approval provisions. Most well drawn leases have language including transfers of stock as an action requiring assignment of the lease. The best course of action when selling your business is to seek the cooperation from the landlord as early as possible.