Timing the Sale of Your Business in Leased Premises

Actually, the answer to this question is quite simple: before the lease runs out. Otherwise, your business is worth next to nothing.

Frequently, business owners struggle with the day to day activities of running their businesses. However, there are times when the business may not go well or just be located in the wrong place.

Now that you have decided to sell, you really need to do something about it. The average person does nothing. They wait, and they send out a few more flyers and hope the business will get better next month.

And, you probably already know what’s in store for them next month. More bills, more expenses, unexpected payments and perhaps even a few collection calls.

The question often boils down to when is the best time to sell the business. Usually, sellers wait for a good month, so they can show good sales. But, those better numbers don’t translate to the bottom line because of the past bills.

Let’s look at a restaurant as an example. What does it have for sale? What are its assets? What will the new purchaser want? What assets have transferable value?

Basically, if you have a business situate in leased premises, the lease is your main asset. It’s a time sensitive depreciating asset. When the lease runs out, you can no longer open the doors. You’re out of business. The landlord has all the rights.

So, the trick is obviously to sell the business while there is still time on the lease, not when it’s become a ticking “timebomb”.

A five year lease has value. A two month lease is a liability. If you can secure a commitment from the landlord to permit occupancy for five years, then you can maximize the value of the business. You don’t necessarily need to agree to lease the premises for this period, but you need confirmation that the landlord will agree to this time period. And, further that the landlord will permit assignment to a new tenant upon a reasonable basis.

If you find yourself in a position where you have to sell, contact the landlord and seek the landlord’s co-operation in the sale. Price the business reasonably, or it won’t sell and you will run out of time.

Let’s assume that your lease expires at the end of the year. There is probably a provision that requires you to give 3 month’s or 6 month’s notice of the exercise of the renewal option. Be aware of that date. It’s a crucial and critical date. If you miss it, there are dire consequences. You may not be able to renew at all. You are now totally dependent upon the whims of the landlord.

If you miss the date, or do not wish to exercise the option, contact the landlord and have the landlord agree:

• To provide security of tenure to a new tenant for a period of at least 5 years
• Extend your lease on a month to month basis
• Permit the new tenant to assume your lease
• Release you from the provisions of the lease

If you don’t ask, then no landlord will agree. This is the appropriate time to retain a commercial realtor.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com