Lease assignment when buying a business: consent, the guarantee, and the years left

What is a lease assignment when you buy a business?

A lease assignment is the landlord letting the buyer step into the seller's existing lease, so the same rent, the same term, and the same clauses move to the new owner. You are not buying the building. You are asking to become the tenant. Most commercial leases say that transfer needs the landlord's written consent.

In an asset sale the company that signed the lease often stays behind with the seller, so the lease has to be assigned or replaced. In a stock sale the tenant company stays the same and the lease may transfer with it, unless the lease treats a change of owners as an assignment anyway. Read the clause. See asset sale vs stock sale.

Have a business attorney read the lease before you sign an offer that assumes you can stay. This guide is general education, not legal advice, and landlord rules vary by state and by the lease in front of you.

How is an assignment different from a new lease?

An assignment keeps the lease that already exists. A new lease is a fresh contract between you and the landlord, and the old one ends. Which one you want depends on what the current lease actually says.

• Assignment keeps the rent and the years already negotiated. That helps when the rent is below what the landlord would charge a new tenant today.
• A new lease helps when the remaining term is too short, the old clauses are harsh, or you need different hours, different use, or an option to renew that the current lease does not give you.
• A landlord who agrees to a new lease can also raise the rent, ask for a deposit, or change the use clause. Get the draft before you agree to give up the old lease.
• Some deals do both in spirit: the landlord consents to an assignment and signs a short amendment that adds years or a renewal option. The amendment is the document. A verbal promise to 'work with you later' is not.

When do you need the landlord's consent?

You need written consent whenever the lease says the tenant cannot assign, sublet, or change control without it, which is the usual commercial lease. Ask early. A landlord who takes six weeks to answer can blow a closing that looked fine in the offer letter.

• Some leases say consent will not be unreasonably withheld. Some say consent is entirely up to the landlord. Those are different deals. Read the sentence.
• Consent often comes with conditions: your financials, a personal guarantee, a fee, or a requirement that the seller stay liable.
• Put landlord consent on the closing conditions in the offer and in the purchase agreement, and do not waive it to save a week. Escrow can hold the closing until the consent is signed. See what escrow does.

Outline the lease plan in the letter of intent so a refused consent is a reason to walk, not a surprise on funding day.

What happens to a personal guarantee on the lease?

A personal guarantee is the owner's promise to pay the rent if the business does not, and an assignment does not erase that promise unless the landlord signs a release. On a small business lease, the seller has often guaranteed the rent personally. Buyers are often asked to sign a new guarantee.

• If the landlord does not release the seller, the seller can still be sued for rent after you take over. Sellers should ask for that release. Buyers should not assume the seller's guarantee protects them.
• If you sign a guarantee, the landlord can look to your personal assets when the business misses rent. Read what triggers it, and whether it ends when you sell later.
• A guarantee on the old lease and a guarantee on a new lease are separate signatures. Know which one you are signing.

Your attorney should tell you who is liable on the day after closing: you, the seller, both, or the entity alone. Do not guess from the consent letter's cover email.

How should the years left on the lease compare with the loan?

The lease should still have years left, including renewal options you can actually use, for as long as you will still owe money on the purchase. If the lease ends in three years and the debt runs much longer, the landlord can take the location back while you still owe the money. The customers who came for that corner may not follow you.

• Count the base term that is left, then read each renewal option: who can exercise it, the deadline to give notice, and how the rent is set. An option the landlord can refuse is not extra years.
• A lease that expires soon is a price problem even when the landlord likes you. You are buying a business with a clock on it.
• Ask your lender, before you sign the offer, how much term they want to see. Lenders often want the lease, with options, to cover the loan. Getting that answer after you have agreed a price is how deals get renegotiated.

Rent is a cost the earnings have to carry. Once you know the rent and the years you can stay, check whether the price still works with little of your own money. See my $0-down plan. DealBrain structures the deal so you put in little or $0 of your own money, and walks you through every step to closing. We find the money for you. It is for anyone buying a business. Free first look. No credit check. $299 per deal, one time, only if you keep going. Not a subscription. Estimates only. Not a loan offer, and not legal, tax, or financial advice.

What should you ask the landlord?

Ask who must consent, whether the seller is released, whether you must guarantee the rent, how many years you can stay, and what it costs and how long it takes. Send the questions in writing. Keep the answers with the lease.

1. 1
   Confirm the tenant on the lease

   Ask the landlord who they show as the tenant, and compare that name to the lease and to the company selling you the business.

2. 2
   Ask for consent, and the conditions

   Will they consent to an assignment, a new lease, or both? What financials, fee, and timeline do they want?

3. 3
   Ask who stays liable

   Will they release the seller and any personal guarantee, or does someone remain on the hook after closing?

4. 4
   Ask what you must sign

   A personal guarantee, a deposit, a higher rent, or a change to the permitted use. Get the form, not a summary.

5. 5
   Count the years and the rent

   Base term left, each renewal option, notice deadlines, and the rent during each period, including increases already written in.

6. 6
   Ask what is already wrong

   Unpaid rent, defaults, open disputes, or a plan to sell or tear down the building. Also ask whether another tenant has an exclusive right that blocks what this business sells.

How do you check the tenant is the company selling to you?

The name on the lease should be the same active company that is signing the purchase agreement, or the agreement should explain the difference in writing. A lease in a person's own name, in an old company that was dissolved, or in a related company that is not the seller, means you may be buying one business and renting as another.

• Read the tenant line on the lease and every amendment. Trade names do not count. You want the legal entity.
• Compare that name to the seller on the purchase agreement and to the company that holds the bank account and the licenses.
• Check that the entity is still active and in good standing in the state where it was formed. A lapsed registration can stall a signature and can stall the landlord.

Run a BizFacts report on that entity for registration, liens, litigation, bankruptcies, tax standing, and watchlist hits. A record search will not tell you whether the landlord will consent. It will tell you whether the company named on the lease is an active company, and what else is on the public record before you rely on the signature.

If the names do not match, stop and ask why. The answer belongs in the purchase agreement, with your attorney, before you are at the closing table.