Here’s something that surprises a lot of business owners: your commercial lease matters almost as much as your business itself when it comes time to sell. A buyer is purchasing two things—the business and the right to keep operating in that location. If the lease is expiring soon, or if the landlord won’t let a new owner take over, you’ve got a serious problem. Deals fall apart over lease issues all the time.
The Four Critical Lease Questions
Before you do anything else, get answers to these four questions. How much time is left on your lease? Buyers want at least three to five years remaining. If you’ve got one year left, that’s a problem. Does the lease allow assignment to a new owner? Can they take over, or does the landlord have to approve a new tenant? What happens to the rent if it’s assigned? Some leases have rent escalations built in that trigger on assignment. Can the landlord refuse a new tenant? Some leases give the landlord total discretion.
These answers determine whether a buyer can actually operate your business in its current location.
Favorable vs. Problem Leases
A favorable lease has five or more years remaining, automatic assignment rights, rent that stays the same after transfer, no ability for the landlord to refuse a qualified tenant, and no hidden escalation clauses. A problem lease has less than three years left, requires landlord approval for assignment, includes rent increases triggered by a sale, gives the landlord discretion to refuse, and may contain surprise renewal terms that lock you into extensions.
The Landlord Surprise
Many leases include a clause—often buried in legal language—that lets the landlord cancel or dramatically raise rent if the business changes ownership. You might not know your lease has this until you talk to a real estate attorney. If your landlord can raise rent 40% upon assignment, or can cancel the lease entirely, you’ve got a problem that might make the business unsellable at a reasonable price.
How to Handle It (Timeline)
At 18 months before listing, have a real estate attorney review your lease. They’ll spot problems you’d miss. At 12 months, have a conversation with your landlord. Keep it informal: “I might look to sell in a couple of years. I want to make sure you’d be okay with a new tenant. What does that process look like?” This heads off surprises. At 6 months, if there are issues, try to renegotiate. Get favorable terms in writing. At listing, provide buyers with your lease details and a clear summary of assignment terms. Transparency builds trust.
A Real Example
John’s retail store was worth $500K. A buyer offered $450K. Everything looked good—until John’s attorney reviewed the lease and found language saying the landlord had “the right to recapture space and adjust rent terms upon any change of control.” John hadn’t read his own lease carefully. When the landlord caught wind of the sale, he demanded 20% more rent. That turned a $450K deal into a $250K deal. The buyer walked.
If John had talked to his landlord 12 months earlier, he could have renegotiated or found solutions. Instead, a lease clause he didn’t even know about destroyed his sale.
Don’t let your landlord derail your deal. Review your lease now, talk to your landlord early, and secure assignability before you ever go to market.
Ready to make sure your lease won’t kill your sale? Owners Club helps you identify potential deal-breakers and prepare every aspect of your business for a successful exit.