In general, landlords like to see strong financials, good credit, and solid prior experience (two out of three will often do) in order to seriously consider your tenancy. More demanding landlords may ask to see company materials such as partner resumes, business plans, menus, etc. before approving a lease assignment.
To sell any business that occupies a space, the Landlord must assign the current lease to (or sign a new lease with) the Buyer. If the Landlord will not do so, the Buyer cannot operate there and will be unable purchase the business.
Landlords cannot unreasonably deny an assignment, but they can control who uses their space by insisting on a “comparable” Buyer, with equivalent experience and financial resources as the Seller. They can also deny Buyers with poor credit scores or insufficient net worth, out of concern they may not pay the rent. Also remember that Landlords set the lease terms - a big change in terms during assignment can (positively or negatively) impact the businesses's expenses. Every combination of lease, Landlord, and Buyer are different.
Since lease assignments are a contingency of completing a purchase, Landlords have influence over each business sale. Sellers who bring good relationships with their Landlords to the sales process have a big advantage!
It’s generally best to keep news of the prospective sale confidential until all parties are prepared and armed with the best chance of the Landlord approving the lease assignment. This is typically after the business is in escrow.
The Broker must evaluate the Buyer’s financial position and experience, and be confident the Landlord is likely to approve them. The Buyer must perform due diligence on the business, complete any preliminary lender or franchisor pre-approvals, and open escrow; only then can they focus on the lease assignment. Finally, every so often pre-existing lease terms exist that derail an assignment if the Landlord knows prematurely; this varies from lease to lease. Once these tasks are complete, the Seller and Broker can approach the Landlord, confident they've found a suitable Buyer.
Being well-prepared prevents most Landlord's objections, and provides the best odds of the lease assignment being granted.
A personal guarantee is a written promise from a guarantor (typically the business owner) that in the event of a breach of any lease terms, the guarantor will personally pay the financial obligation of the lease. This most commonly occurs when a business fails to pay rent, and the guarantor is obligated to pay personally instead. Personal guarantees are standard terms in most real estate leases.
Remember that most Landlords are unwilling to lease space to companies with few assets they can collect in the event of default; by the time the Landlord pursues that tenant legally, the company is often out of business with zero cash or valuable assets. On the other hand, personally collecting from the guarantor is usually successful, especially when the guarantor has assets such as bank accounts, a home, rental property, or an investment portfolio. Personal guarantees give Landlords enough fallback position to sign leases with smaller tenants.
Leases that are assignable and were personally guaranteed also typically require the Seller (the transferor) to remain as a secondary personal guarantor if the Buyer (the transferee) defaults on their financial obligations.
This ongoing liability is generally limited to the remainder of the current lease term, and excludes any future options to renew. Also, the landlord must usually pursue the Buyer to the fullest extent of the law before attempting to collect from the Seller. A good Broker will employ several strategies to persuade the Landlord to waive this responsibility, but it is generally unavoidable when it was agreed to in the original lease.
The Landlord (and their attorney) have already approved the current lease, so they are comfortable with its terms and conditions. Negotiating a new lease takes time, requires the Landlord to consider new terms, costs money to renegotiate, and is generally a giant inconvenience. It is far more convenient for them to draft a simple assignment on a familiar lease than go through the long process of creating a new one. A large financial incentive is generally required for the Landlord to draw up a lease from scratch.
The conditions of your local real estate market including rental rates, supply and demand, interest rates, and overall competition for tenants all influence the specific terms of a lease.
In soft markets with greater vacancies, declining rents, or when qualified tenants are difficult to come by, negotiating with Landlords for better terms has a greater chance of success. In hot markets with few vacancies, increasing rents, and strong tenant demand for space, negotiating concessions is usually unsuccessful.
Most Landlords will be very familiar with current market conditions and standard lease terms before opening negotiations. You and your Broker should be similarly prepared; familiarize yourself with comparable rents and lease terms in your area to be prepared for negotiations.
Yes. Transfer fees are extremely common in leases. They typically range from $500 - $1,500 and are intended to cover the Landlord’s transaction costs. These fees are customarily paid by the Buyer.
In almost all cases, yes. Security deposits are typically one month’s rent; the amount varies depending on the business, market conditions, space considerations, the Landlord’s policies, and the Buyer’s financial strength.
Always try, but the odds of successfully negotiating free rent or Tenant Improvement ("TI") money usually depends on market conditions and the terms of the original lease.
When market conditions favor Landlords (low vacancies, increasing rents, or when space is in high demand), a Buyer requesting a lease assignment may have no leverage to negotiate. Also remember the Landlord has a current lease in place, is collecting rent, and may simply be uninterested in providing any financial incentives. Other times, the Landlord factored TI money into the original lease, and it may not make financial sense for them to provide additional funds for the new tenant. For example, if 3 years into a 10 year lease an owner sells their business, the Landlord may not have yet recouped their original investment.
Always consider both the landlord’s position and general market conditions before opening negotiations. Generally, tenants with larger spaces and sign longer leases are granted more TI money.
Common Area Maintenance ("CAM") fees are expenses that tenants reimburse Landlords to cover the costs associated with maintaining the shared areas of a commercial property. Common areas are spaces used by all tenants, such as hallways, elevators, parking lots, lobbies, meeting rooms, and public restrooms. Maintenance services typically include security, janitorial, landscaping, maintenance and repair, waste management, and occasionally utilities.
In addition to base rent, many leases include CAM fees as part of the lease's triple net ("NNN") charges. In these leases, tenants pay the bulk of the building or center's operating expenses. The phrase "triple net" refers to the three types of charges generally included: insurance, property taxes, and CAM fees.
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