The lease

The short version

• If the business leases its location, the lease is one of the most important documents in the deal.
• You will either take over the existing lease, with the landlord's consent, or sign a new one.
• Lenders often want the lease, with renewal options, to run at least as long as the loan.
• The landlord may ask for your personal guarantee, and the lender may ask the landlord to sign a waiver.
• Start the landlord conversation early, once the seller agrees. Landlords can be slow.

Take it over, or sign new

Assignment. The existing lease is transferred to your new company. Most commercial leases require the landlord's written consent.

A new lease. You negotiate a fresh lease with the landlord. This is common if the old lease is short, the terms are poor or the seller owns the building.

What to check

• Length, including renewal options, compared with your loan term.
• Rent and how it increases.
• Who pays for repairs, property taxes, insurance and common area costs.
• Use: whether the lease allows the business as you plan to run it.
• Personal guarantee: whether the landlord wants one from you, and whether it can be limited or end after a period.
• The seller's guarantee: whether it will be released.
• What happens if the building is sold.

Documents the lender may need

• A landlord waiver or similar agreement, which lets the lender access equipment and inventory in the building if the loan goes into default.
• An estoppel letter, in which the landlord confirms the lease is in effect and there are no defaults.

Ask your lender early which they require. Landlords take time to sign them.

If the seller is the landlord

When the seller owns the building and will lease it to you, make sure the rent is at market and the lease is long. Your lender will review it closely. Lesson B3.5 covers this.