I have recently come across an excellent blog written by Peter Siegel, a consultant
in California that deals with a range of small businesses being bought
or sold. When I come across something especially helpful for buyers or
sellers, I will be sure to highlight it here (even if it may be an old
blog on his site).
Of course, I won’t post his entire blog entry here. That would kind of
be cheating on my part, wouldn’t it? I will be sure to give you the
link to the specific blog entry so you can read it in full.
This particular entry has to do with a client of his that moved forward on the due diligence on a deal that was eventually shot down due to the landlord not being willing to renegotiate the lease terms.
I have seen it plenty in the time I have been doing this, as well. Landlords are oftentimes the bottleneck when it comes to the due diligence period. Even if they are willing to work with you (the buyer, seller, or business broker), that doesn’t mean that they will move quickly.
Basically, there is no reason for them to — they already have the space leased. What is the incentive for a landlord to go out of their way to help an owner that is trying to sell their business?
There are some landlords that will move quickly, and some that are more inclined to work with their tenants than others (and conversely, there are some that feel they have no reason to cooperate at all).
When you are buying a business, you need to establish a rapport with the landlord as quickly as possible. If the landlord will not assign the lease, then there is no reason to pursue the deal. The other pieces are equally important, but I would suggest that you start the process with the landlord as soon as you have a signed contract.
***Please, if you are signing a commercial lease, make sure that the lease is assignable. If the landlord wants the authority to approve the assignee (which I would advise landlords to insist), then use the magic words "which consent shall not be unreasonably withheld".
My client is now out over $6,000 in CPA fees for due-diligence and attorney fees for contract reviews, over 120 hours over a three month period, when he should have pressed harder in the begining (one key item on my checklist for financing clients) to check with the landlord about future lease terms!