Running a business rarely means dealing with one major decision at a time. The reality is that selling a company, planning for succession, raising capital, or pursuing an acquisition often happens while a commercial lease is also demanding attention.
Recently, Keyser advised several business owners navigating commercial lease negotiations while preparing their companies for a potential sale.
Although every transaction was unique, the same lease provisions consistently emerged as critical to preserving flexibility, protecting business value, and supporting a successful transition.
These were the four areas of the lease that required the most attention:
Negotiating a commercial lease is always a balancing act between lease term, financial concessions, and tenant flexibility. In negotiations for these companies, one of the first conversations centered on finding a lease term that worked not only for the current owner, but also for whoever owned the business next.
A lease term of approximately 24 to 36 months was typically an early idea proposed by our clients. It gave their potential buyers greater flexibility after an acquisition, particularly if they intended to consolidate operations or evaluate their future real estate needs before making a longer-term commitment.
The tradeoff, however, was that shorter lease terms typically led to reduced concession packages, especially tenant improvement allowances. That meant current owners needed to invest more of their own capital into preparing the space.
For a couple of the tenants we worked with, that wasn't a concern because preserving cash wasn't a priority. For others, preserving liquidity was essential to maintaining operations and maximizing the business's value during a potential sale.
Ultimately, the objective wasn't simply negotiating the “shortest” lease term. It was creating the flexibility needed to support today's business while making the company more attractive to tomorrow's buyer..
Sublease and assignment provisions became the most time-intensive part of the lease review. In many commercial leases, these clauses provide the primary opportunity for a tenant to transfer the lease's financial obligations to a third party. Because of that, the language here was especially important to review and negotiate.
If a business owner sells their ownership interest in the company, that transaction may be treated as a lease assignment. Depending on how the lease is written, important rights like the right to sublease, or even to exercise renewal options, may not transfer to the new owner.
Without careful review and negotiation, these provisions can significantly limit an incoming buyer's flexibility and create unnecessary obstacles during the sale of the business.
As mentioned previously, most commercial leases treat the sale of a majority ownership interest in a company as a lease assignment. By default, that often gives the landlord the right to approve or object to the transaction.
Fortunately, this isn't an issue that requires conflict. More often, it requires thoughtful negotiation and carefully crafted lease language.
A well-crafted Permitted Transfer provision allowed our business owners to sell their interest in their company to a qualified buyer without requiring landlord approval, while still protecting the landlord's legitimate interests.
This became an important part of every lease negotiation because it preserved the owner's flexibility to make future business decisions without creating unnecessary obstacles within the lease.
While less common than the previous lease provisions, a personal guaranty can be just as important. It can have significant implications when it comes time to sell a business.
Even if an owner sells their entire interest in the company, they may still remain personally responsible for the lease if the guaranty stays in place. In other words, they could continue carrying legal and financial liability for a business they no longer own or control.
For one business owner we worked with, removing the personal guaranty became a critical part of the negotiation. Keyser successfully negotiated its removal, allowing the owner to move forward with the sale without lingering personal obligations.
Addressing this issue before the transaction closed helped ensure that the lease supported the sale rather than creating unnecessary risk after the business changed hands.
When owners are preparing for a major transaction, their focus should be on running the business and planning for what's next, not deciphering lease language or identifying hidden risks.
That's where experienced tenant representation makes a difference. A proactive lease review can uncover potential issues, preserve flexibility, and help ensure your real estate strategy supports your broader business strategy.
If you're considering a business sale, ownership transition, or an upcoming lease decision, now is the time to review your lease. At Keyser, we help business owners understand their options so they can move forward with confidence.
Request your complimentary lease review at keyser.com/lease-review..