Lease

[zimby]

Howdy

Got a scenario that I need assistance with.
There is a business being sold, currently there is 1 and a few months year left on the lease at 6k per month( 3 year lease).
This is a small business with 120k stock and approx 100k for the Customer Base.
The current business owner advises that they will need to look after the lease, even tho the business will change hands.
I believe it is a standard commercial lease.
Now please correct me if I am wrong, but should the new owner not take over this lease( business requires store front and customer base rely on location)
Are there options to Break the lease?
There is also the likelyhood that the new owner will go bankrupt as the industry is pretty tough.
I understand that Many here are commercial owners, I'm aiming for a win for everyone if possible, but I need to play the side of the renter.
Thanks

Denis

 

[wylie]

I'm a bit confused by the post. Are you the owner? Is your tenant selling their business? Are they wanting to get out of their lease rather than have the new owner take it on? Won't the business be sold with the lease in place? Does the new owner wish to relocate and not honour the lease?

 

[zimby]

Hi Wylie
I'm neither the business owner, or the property owner.
I know the business owner who is selling, but they seem to think they are stuck in a commercial lease.
They want the new owner to take over the lease, but think this is not possible.

 

[chilliblue]

The person who has signed the lease is responsible for all its terms until:

1. It expires and the premises are vacated

2. A new lease is entered into

For the second to happen with a new lessee (in this case new owner of the business) the existing lessee (your friend) will need to make the request to the landlord.

In most retail cases the proposed new owner will need to show their financials, previous experiences and proposed business plans.

 

[jrc]

Your friend needs to read the lease. Normally the lease would provide that the property owner needs to consent to the assignment of the lease. However, it is going to be in the buyer's interest to have more than a bit over a year's lease left and if they are being financed their bank would like a bit more too. Why doesn't your friend talk to the landlord and see if, subject to the landlord being happy about the new tenant, whether the landlord would consider entering into a new lease say for 3 years with an option to renew. This could get your friend out of any liability and also make the business a more attractive selling proposition.

 

[RPI]

JRC is spot on the money.

Your friend should be getting legal advice otherwise he could be left jointly and severally liable for the remainder of the Lease.

 

[Scott No Mates]

The assignment clause will most likely require that the current tenant remain as guarantor on the lease until such time as the new tenant enters into a new lease.

If there's less than a year remaining on the lease then a new lease will be required and the guarantee continued for the new/first term.

As the lessor doesn't know the assignee from Adam they would be within their rights not to release your mate from the lease until the new tenant has some runs on the board ie exercise of option.

 

[zimby]

I see why Commercial Property can be attractive to buyers.
Thanks for all the input.
It is a tricky situation as the lessor owns and works from adjacent buildings.
Word can spread fairly quickly that a business is up for sale causing problems.
I believe a few buyers are poking their heads in, but it is a tough industry and there is low likelyhood of things eventuating.
I'll make sure they get legal advice and talk to the lessor as soon as a buyer is serious.

 

[chilliblue]

Why would your friend not be upfront with the landlord?

At the end of the day, an assignment of lease cannot be refused by a landlord if the incoming tenant is in the same or better financial and business position as the existing tenant.

It is only whether the landlord wishes to grant a new lease for a longer term and that is incumbent on the purchaser to undertake their own due diligence.

 

[zimby]

Thanks Chilli
They will certainly be upfront with the landlord, but it is a matter of timing.
Once the Lessor is Notified, word will almost certainly be out that the business is being sold.
Should any long term employee's of the business hear about the sale, they may decide that now is a good time as any to change jobs.
Having worked at numerous small business, a number of which have been in this exact situation I know first hand how detrimental it can be to ongoing business.
The business owner is keen to exit the industry as the stress is quite literally killing them.
They wish to close this portion of their life and move on.

 

[Scott No Mates]

There's no need to notify the lessor of the assignment of lease until the deal is certain. Likewise the employees.

Will your friend be selling through a business broker?

 

[zimby]

Hi Scott

Yep business is being sold through a broker.
The friend is actually a family member, thus my continued interest.
To make matters more complicated I provide the IT support.( fairly nasty legacy software too)

 

[Scott No Mates]

The broker would also be a REA and should be able to advise them on when the lessor should be notified of the sale. Most brokers are useless in these aspects of the transaction but deal with them (poorly) often.

 

[zimby]

The broker would also be a REA and should be able to advise them on when the lessor should be notified of the sale. Most brokers are useless in these aspects of the transaction but deal with them (poorly) often.

Do you deal with people in QLD, specifically Brisbane?
Should things go less than smoothly, I'm sure we'd be looking for some solid advice.

 

[Scott No Mates]

Do you deal with people in QLD, specifically Brisbane?

Only severely - check your pm's.