Financials Adjusted - Profit Marketed - Business Sold

Common Mistakes of Taking Over Business Lease at Sale of the Business

Common Mistakes of Taking Over Business Lease at Sale of the Business

There are generally three parties involved in the transaction of a business. This is especially so in a business that relies on its location for its trade. Examples of this are retail businesses such as cafes, restaurants, bars as well as businesses that customers are compelled to patronise because of characteristics such as convenience and attractiveness to name a few.

Three Parties in a Deal

The parties are the Seller, the Buyer and the Landlord. The landlord provides the lease which is another contract bringing the deal together.

A retail lease is a regulated instrument that is contained in a document (and its ancillaries) that are dozens of pages long. They can complicated and confer strong rights and responsibilities to the participating parties. Quite often, they require a tenant to receive formal legal and financial advice from those seeking a lease as part of their consideration.

In many ways they are equivalent to a bank loan but rather than money that is being borrowed it is property. Rather than interest that is paid it is rent. Just like the capital, the property has to be returned in original condition.

Retail lease regulation has been tilted towards protecting the tenant. This is done by placing substantial disclosure requirements upon landlords where they are perceived as being a sophisticated party in a lopsided transaction.

A Typical Landlord View of Liability

How does a landlord to counter the level of liability that is heaped upon them?

Basically, they push it onto someone else. They generally prefer to communicate with a third party that then acts for the hopeful tenant. That third party is a solicitor. They are equipped to deal with the liability that is imposed on the landlord in this lopsided negotiation. This has ramifications for prospective tenants.

Too often the role of the landlord is subordinated in negotiations involved in a business purchase. Rest assured, they are not subordinated for long.

Advice for a Prospective Tenant

When a deal is reached between the buyer and seller it is then sent to the Landlord. If the buyer does not have a solicitor the landlord has been placed on the back foot and they will not appreciate it.
The landlord wants to ensure that the rent will be paid on their property and that their position as the dominant party in a retail lease does not leave them in a position where they can be accused of being unfair in their dealings with the tenant.

If you think this doesn’t happen you can get a good idea of how it works in relation to banks who are in a continuous line of fire for lending money to customers who then say that they didn’t know what they were getting into and try and wriggle out of their obligations.

A smart prospective tenant will ensure they use a solicitor. They need them in order to get past the first base with a typical landlord. That is, to be able to simply communicate with them. In practical terms it is a cost that it is not possible to avoid.

In Queensland, if you are seeking to have an existing lease assigned to a buyer or new tenant that cost is borne by the seller. Where a new lease is required the cost is borne by the landlord. The prospective tenant still needs to have a solicitor to steer them through this process.

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