We are soon closing on a sale that was almost lost because the seller did not consult with the landlord, despite assurances to us (the broker) that she had. "Oh, the landlord is just fine with a new tenant. We're now on a month-to-month, but he's going to keep the same terms and provide a five-year lease with a five-year option." But, the seller would not let us talk directly with the landlord.
This is a retail location, and long-established presence in this area is a major asset of the business.
So, we enter into a contract, contact the landlord to get the new lease drafted and signed, and discover that he has been continuing the month-to-month as a favor to the seller, doesn't want the business to continue at this location, and, if it did, wants to double the rent. The buyer now faces the daunting task of finding a new building, getting it prepared for tenancy moving all the fixtures and equipment, and educating the public about the new location. We reached out to the commercial real estate community, found a new venue just two blocks down the street, negotiated a new (very favorable) rent, and saved the deal. But, the seller took a 25% "haircut" to cover the buyer's costs, down-time, and increased marketing expense.
The lesson to sellers? Have this conversation with your business broker early! If you have a lease with a lot of time left and un-exercised options, check with your broker and business attorney to determine if your lease allows for approval of a sublet or assignment that "cannot be unreasonably withheld." If you are on a month-to-month rental or near the end of a lease, discuss with your broker the pros and cons of entering into a new lease, before listing the business and before discussing the possible sale with the landlord. Then, when your rental situation has been clarified, approach the landlord. Better yet, have your broker be involved in this step to orchestrate a smooth and uneventful transition of tenancy. The last thing we need in a sale is a "surprise," and, dealing with the landlord in advance can avoid a fatal flaw in the transaction.