Understanding Leases: Crucial Aspects That Can Determine a Business’s Success
When you’re selling a business that includes a lease, it becomes a significant factor for the buyer during the deal-making process. Similarly, if you’re buying a business, the lease’s terms and conditions are equally vital. If your business’s success hinges on its location and you don’t own the premises, the lease’s terms become highly relevant to your buyer. In this article, we delve into some key clauses and terms to consider when evaluating a lease.
Lease Transfers
One of the first things to consider is the lease transfer terms. If you anticipate selling your business in the near future, understanding these terms before signing the lease is crucial.
Lease Duration
The length of your lease is another important consideration. A longer lease term provides a buyer with assurance of continuity. However, for a new business owner, a shorter lease might be more beneficial, providing an escape route if the business doesn’t prosper.
Competitor Clauses
For businesses leasing in shopping centers, it’s crucial to secure a clause preventing the center from leasing to direct competitors. Without such a clause, you could find yourself continuously vying for customers with a similar business in close proximity.
Unforeseen Costs
Review the lease for clauses addressing unexpected events. For instance, if a fire destroys the property, who bears the financial burden during the rebuilding period?
Other practical considerations often overlooked include real estate taxes and maintenance costs. Who is responsible for these charges? Who takes care of necessary repairs and who foots the bill?
Rent Changes
Always check for clauses related to rent alterations. Unanticipated rent hikes can have a detrimental impact on your business’s financial health.
Personal Guarantees
New business owners might be asked to personally guarantee the rent, which is considerably different from leases that accept a well-established corporation as a tenant.
As evident, a lease agreement encompasses much more than just the rent amount. It’s crucial to read the lease meticulously and ask any necessary questions. A Business Broker or M&A Advisor can guide you through lease terms when you are acquiring a business, ensuring you fully comprehend what you’re signing up for.
