What is Your Company Worth? Factor 8—Real Estate Leases

Your lease could delay your sale.
Or quietly reduce your valuation.

Most owners only think about their lease when signing it or renewing it. But when it comes time to sell, that same document becomes part of due diligence and can either support the deal or complicate it.

Buyers do not just evaluate revenue and profit. They evaluate obligations.

The length and structure of your real estate lease can be either an asset or a liability.

A long-term lease in a prime location may increase stability and appeal.
But five or more years remaining on a lease can become a burden if the buyer plans to consolidate operations or relocate.

Several common lease provisions raise red flags during a sale:

• The lease cannot be assigned without landlord approval
• The landlord can renegotiate terms upon transfer
• A personal guarantee from the owner is required
• The landlord will transfer the lease but not release the seller from the guarantee
• Vague language around shared expenses
• Financial net worth requirements for the incoming buyer

What seemed reasonable years ago can become a major obstacle later.

In some cases, clauses written decades earlier create nearly impossible conditions because the owner’s financial position has dramatically changed. Cleaning up those provisions late in a transaction can cost time, money, and leverage.

Buyers factor this risk into their offer price and deal structure.

Before renewing your lease again, review it as if you were the buyer.

Ask:

• Is the lease transferable without friction?
• Does it require a personal guarantee?
• Could any clause delay or complicate a transaction?
• Does the term length create flexibility or restriction?

Work with your attorney during renewal, not during due diligence.

The best time to negotiate flexibility is when you are not under pressure.

Know what is in your lease before you put your company on the market.
Preparation protects value.

 

 

For more leadership tips, check out Pam’s blog on 8 Things Exceptional Bosses Constantly Tell Their Employees.