While property owners can, and do interfere with tenants wanting to sell their small businesses, there are some key steps that a company owner can take to overcome landlord problems.
Sooner is better than later
Business sellers often believe tell their brokers that they would rather wait to discuss the business’ lease assignment with the landlord, believing is not necessary until a buyer is found. The seller may also fear that the landowner will tell others that the business is for sale, and the word will get out to customers and employees. Most brokers will tell you that by putting off this necessary step, both seller and broker run the risk of wasting a lot of time, energy and money devoted to marketing the business, only to find out that the property owner will not cooperate with the sale.
The landlord meeting is a sales opportunity
Most sellers and many brokers approach the property owner rather tentatively, and then plead for cooperation. It is not uncommon for that request to be met with the question: “Why should I?” or “What’s in it for me?” Chances of a positive outcome are much better if the seller and broker use a positive approach, pointing out that a new buyer will bring renewed energy and enthusiasm to the business, which is so important in these difficult economic circumstances, and a real benefit for the lessor if rent is partly based on a percentage of the business’ revenues. If there is some concession that would please the lessor—for example, the business owner agrees to be responsible for power washing the building, removing the weeds in the parking lot or setting up recycling bins—this promise could be granted in return for the landlord’s agreement to cooperate with a sale.
Know your rights as a tenant
While most leases grant the landowner the right to withhold his or her approval of a transfer from one tenant (seller) to another one (buyer), the provision “approval will not be unreasonably withheld” is also usually included. If the buyer of the business has the same or greater financial and managerial ability compared to the seller, it will be hard for the landowner to justify a refusal to consent to a lease assignment. A real estate attorney should be consulted on this point and the seller can consider whether to threaten a lawsuit to force the landlord to comply.
Plan accordingly if a new lease is required
If the current lease has several years remaining, the conversation with the landowner will focus on getting consent to an assignment. But if only a year or two remain, the business may need a new lease in order to be marketable, and that is the issue to be discussed. If the landlord is opposed to writing a new lease—one that can then be provided to the buyer—it might be necessary for the seller to consider other options, such as a going-out-of-business sale. If it is the rental amount that worries the landlord, a new lease could be drawn up which provides the tenant with options to renew for extended periods, with the rent amount to be renegotiated at each option renewal date.
One business broker suggests finding out if the “landlord” actually owns the property or has a master lease and is subletting to the business owner. That is commonly what happens in gas station businesses: An oil company might lease a station to an owner/operator, but once the underlying agreement between the oil company and the actual landowner expires, the gas station owner will lose his or her rights. It is wise to become informed about who owns what rights to the property.
Yes, landlords can ruin a tenant’s plans to sell the business, but there are things a seller—and the seller’s broker—can do to improve their chances of success. First and foremost: The sooner the matter is brought up with the lessor, the better.