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Best Practices for Taking Over a Lease in a Business Purchase

Writer: Anthony Jabbour
Anthony Jabbour
2 minutes ago
2 min read

Blog cover image featuring a commercial lease agreement, business keys, and a pen on a desk, with a storefront displaying a “Business for Sale” sign in the background. The image highlights best practices for taking over a commercial lease when purchasing a business.

When purchasing a business, the transaction often includes taking over the lease for the business location. Lease assignments can seem like a minor part of a larger purchase agreement, but they can create significant problems if not handled correctly.


The purchaser generally has two options:

1. Assign the existing lease to the purchaser; or

2. Sign a new lease with the landlord.


With an assignment, the purchaser takes over the seller’s existing lease, including its remaining term, rent, obligations, restrictions, and renewal options. This can be the simplest and fastest route.


On the other hand, signing a new lease allows the purchaser and landlord to renegotiate the term, rent, use provisions, and renewal options. But the seller’s existing lease may contain terms more favorable than new terms the purchaser could negotiate.


Landlord Consent Is Usually Required


Many leases require the landlord’s written consent before the tenant may assign the lease. Some leases also treat a sale of the tenant’s business or a change in ownership as an assignment requiring consent.


The purchase agreement should make landlord consent, or a satisfactory new lease, a closing condition.


What a Landlord Estoppel Does


If the purchaser is taking an assignment of the existing lease, the purchaser should request a landlord estoppel certificate.


A landlord estoppel is a signed statement from the landlord confirming the current status of the lease. It gives the purchaser information about the contractual relationship it is assuming, rather than forcing the purchaser to rely only on the seller’s statements.


The purpose of the estoppel is to identify potential issues and prevent the landlord from later taking a position contrary to the certificate after closing.


Why an Estoppel Matters


Without a landlord estoppel, the purchaser may discover problems only after taking over the lease. For example:

  • The seller says rent is current, but the landlord claims arrears.

  • The seller says the lease runs through 2035, but the landlord says a renewal option was never properly exercised.

  • The seller says there are no disputes, but the landlord claims unpaid additional rent or another default.


An estoppel does not cure every problem, but it reveals the landlord’s position before closing.


Other Documents to Consider


Depending on the transaction, the parties may also need:

  • An assignment and assumption of lease;

  • Landlord consent to assignment;

  • A release of the seller and any guarantors;

  • A new lease;

  • A guaranty from the purchaser or its owner;

  • A subordination, non-disturbance, and attornment agreement (SNDA) in some circumstances.


The Right Approach Depends on the Deal


Taking over a lease involves more than simply signing the business purchase agreement. The buyer, seller, and landlord must decide whether to assign the existing lease or sign a new one, obtain any required landlord consent, and address documents such as estoppels, guaranties, and SNDAs. Because no business purchase is one-size-fits-all, an attorney can help determine which documents are essential for your specific circumstances. Jabbour Law can help you navigate these issues and protect your interests in your next business purchase.






 
 
 

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