One of our clients is interested in growing by acquisition and found a company wanting to sell. It does about 25-30% of his sales, is only about two miles away, is profitable, and – this is the most important factor – has space he needs, as his facility is jammed.
He met the owner, they hit it off great, and everything was on the right track until it came time to deal with the landlord. Bye-bye deal.
The landlord was tough to deal with and wanted the lease to have a vacate clause if he decided to sell or redevelop the property (it is an older building and only two stories). It doesn’t make sense to sign a lease where you can be forced out while still paying for the business. It makes even less sense when the business has infrastructure requirements including power, loading docks, and ventilation, which aren’t available in many spaces, plus having customers to go with the space.
Jessica had a client a couple years ago who had the same issue. Too short a lease or a vacate clause was offered, for a location dependent business.
Too often the subject of the lease comes in late, too late. Given bank requirements for leases (which should be the same as the buyer’s requirements) the lease should be discussed early (although the business seller must feel comfortable approaching the landlord, meaning pretty sure a deal will happen).
It’s not just the rate, the NNN, or the term. Vacate clauses can be a killer. Lack of other available space or a good location are huge factors. Bottom line, address the issue of the lease sooner versus later and it’s important for both sides to have a commercial real estate professional on their team.
“The winners forget, but the victims have terribly long memories.” John le Carre
