THE LEASE DOCTOR: When buying a business, read property lease carefully - Press Enterprise

When considering purchasing a business, no matter what kind, it is critical that the lease is carefully examined before concluding the transaction.

In fact, it is best to make the offer to purchase subject to the buyer’s approval of the lease document. This keeps the door open in case there are hidden expense items in the lease that have not been specifically disclosed to the buyer.

It is common to negotiate a price based on revenues and expenses represented by the seller. In many cases the leasing costs are not accurately counted and are higher than what was planned. This is due to misunderstandings about what type of lease it is or factoring in rent increases that are built into the lease.

If a prospective buyer of a business purchases a retail business, extra caution needs to take place as the lease will be a triple net (NNN) lease. This means the tenant is responsible for any and all expenses associated with leasing the property.

For instance, if a business was purchased in a shopping center and three months later the HVAC system needed replacing, it would be the responsibility of the new business owner to replace it as they are now a tenant and have to abide by all the lease terms and conditions.

Since 90 percent of all leases signed are never negotiated relative to lease language, the unsuspecting buyer would most likely be responsible for all the costs associated with replacing the HVAC system, which will run approximately $5,000-$8,000. This is just one example of the exposure a new business owner faces.

In addition, there may also be lease language detrimental to the purchaser that could include various restrictions and open-ended rent increases.

The lease that comes with buying a business is the critical document that the buyer inherits. It is important to look over the lease very carefully from front to back so there are no surprises.

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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at info@buysellflbiz.com or 239.738.6227. Also, visit our Florida Business Exchange website at www.fbxbrokers.com and my personal website at www.buysellflbiz.com.