What happens to the lease when I sell my business?.

Assignment or a new lease.

For most businesses the premises are leased, and the lease is often one of the most valuable things being sold, because the location is part of the business. The buyer either takes an assignment of the existing lease or negotiates a new lease with the landlord before settlement, and in both cases becomes the tenant, picking up the lease obligations including insurance and a security deposit.

Consent, disclosure and costs.

Several things have to line up. The current lease should be checked against the registered lease. The landlord's consent is required, and a mortgagee's consent may be too, and the seller generally applies for consent at its own cost. For retail premises, the seller must give the buyer and the landlord a disclosure statement on assignment and pass on the disclosure they received from the landlord, and a retail landlord must bear its own costs. Where the buyer wants a new lease rather than an assignment, the contract should set out the commercial terms the new lease must meet before settlement, failing which the buyer can terminate, and buyers often seek a special condition giving them more discretion over whether those terms are acceptable. A seller should also push to be released from any personal guarantee they gave, because otherwise the exposure outlives the sale.

Timing is the trap.

If the lease cannot be assigned, or a new lease cannot be agreed, the buyer will usually have the right to terminate, so the lease needs to be dealt with early. Settling before the landlord has consented breaches most leases and carries real risk, and is generally avoided, though where it happens the buyer should indemnify the seller until consent comes through. Our business sale and purchase service handles the lease assignment alongside the sale.

Law referenced: Retail Leases Act 2003 ss 61, 51.