Lease assignment: the deal-killer nobody checks early enough
If the business cannot move, its lease is worth as much as its earnings. Assigning that lease usually needs the landlord's written consent — and a landlord who says no, or says yes at a higher rent, can end a deal that everything else supported.
Why this outranks most financial questions
A restaurant, a shop, a gym, a clinic: the customers belong to the corner, not to the company. If the lease does not come with the business on terms you can live with, the earnings you verified do not survive the move. That makes the lease a first-week question, not a closing formality.
What actually has to happen
- Read the assignment clause. Most leases prohibit assignment without the landlord's written consent. Some add that consent "shall not be unreasonably withheld" — useful, but only as good as your willingness to argue about it.
- Meet the landlord early. They will want to see your finances and your experience, and they may want a personal guarantee. That guarantee is a real liability with a number attached; price it.
- Check the remaining term against your loan. Lenders expect the lease to run at least as long as the loan they are underwriting, and SBA's rules for a change of ownership work the same way. A seven-year loan against two years of remaining term is a problem you have to solve before closing, usually with a new lease or an exercised option.
- Get an estoppel certificate. A short letter from the landlord confirming the rent, the term, the deposit and that nobody is in default. Sellers misremember; landlords rarely do.
The clauses that quietly cost money
| Escalation | Fixed percentage, CPI, or "market" — a market reset on renewal can move rent by a fifth |
|---|---|
| CAM and pass-throughs | Common-area maintenance, taxes and insurance billed on top; ask for three years of reconciliations |
| Percentage rent | Common in retail: extra rent above a sales threshold, so growth costs you |
| Relocation or demolition | Landlord's right to move or end you with notice — fatal to a location business |
| Personal guarantee | Whose, how much, and for how long after assignment |
| Use clause and exclusivity | What you are allowed to sell, and whether a competitor may open next door |
When the landlord is the seller
Extremely common on Main Street, and the rent on the P&L is then whatever suited the seller's taxes. Ask what rent a market lease will carry and rebuild SDE at that number. Below-market rent from a related party is not an add-back; it is an expense that arrives with you.
Ask for the lease with your first document request, before the LOI. It costs nothing, it is a single PDF, and it settles more deals than the financials do.
Questions buyers ask
Can a landlord refuse to assign a lease to a buyer?
Often yes. Most commercial leases require the landlord's written consent to assign, and unless the lease says consent cannot be unreasonably withheld, the landlord has wide discretion. They may also condition consent on a personal guarantee, a higher rent, or a new lease on current market terms.
How much lease term do I need for an SBA loan?
Lenders expect the remaining term, including options you control, to be at least as long as the loan. SBA's change-of-ownership rules follow the same logic, so a long loan against a short lease has to be fixed before closing — usually by negotiating a new lease or exercising an option.
Sources
Related
- Seller's Discretionary Earnings (SDE) — SDE is what a small business earns for one full-time owner-operator: net profit before tax, plus that owner's pay and benefits, plus interest, depreciation and amortisation, plus expenses that will not exist after the sale.
- Asset sale vs stock sale — In an asset sale you buy the things the business is made of and leave most of its history behind.
- SBA 7(a) loan (business acquisition) — The SBA 7(a) programme is how most first-time buyers finance a Main Street purchase.
Checking a real deal? DealLoupe reads the documents a seller gave you and reports the red flags, the gaps and the questions to ask — before you spend anything on due diligence. See what a pre-screen costs →
Last updated: 2026-08-22