Do You Rent Your Business Location? If so... Please Read.

Why Your Landlord Can Quietly Kill (or Save) Your Exit

When most owners think about selling, they focus on the buyer and the bank.

• What will a buyer pay?

• Will the bank finance the deal?

• How do my numbers look?

  
  

All of that matters. But if you rent the space your business operates out of, there is a third party with quiet veto power over your entire exit:

Your landlord.

We have seen otherwise solid deals fall apart.. sometimes at the very last moment.. not because of revenue, not because of profitability, but because of lease and landlord issues that were never addressed early.

If you rent your space and are considering a future sale, here are the key risks you need to understand and plan around.

1. Your Personal Guarantee Might Outlive Your Ownership

One of the first things we look at with owners is simple:

“Does your personal guarantee on the lease survive the sale?”

In many leases, the answer is yes.. unless you proactively renegotiate.

What that means in practice:

• You sell the business.

• A buyer takes over operations.

• They are now responsible for paying the rent…

• But if they stop paying, the landlord can still come after you.

  
  

That is not theoretical. It happens.

If your guarantee survives the sale and the buyer fails, you could be:

• Chased for back rent

• Forced to cover the remaining term of the lease

• Dragged into an expensive, time-consuming dispute long after you thought you were “out”

  
  

Before going to market, a smart owner will:

• Review the lease guarantee language in detail

• Explore options to limit or release the guarantee upon sale

• Get clarity on what the landlord will and will not accept before a buyer is involved

  
  

An exit that leaves you still personally on the hook for the lease is not a clean exit.

2. Assignment and “Change of Control” Clauses Are Hidden Veto Rights

The second big issue is buried in the legal language most owners never look at until it is too late:

• Assignment clause

• Change of control clause

  
  

These clauses dictate what happens to your lease when:

• You sell stock or membership interests

• You sell assets and a new company takes over

• There is any material change in who ultimately controls the business

  
  

In many leases, the landlord must:

• Approve the assignment, and/or

• Has the right to change terms (including rent) as a condition of approval

  
  

Here is how this kills deals:

1. You get an offer.

2. Everybody likes the price.

3. You move through diligence.

4. Right before closing, the landlord says:

   • “We’ll approve the assignment, but rent is going up 25%,” or

   • “We want a new personal guarantee from the buyer on tougher terms,” or

   • “We’re not comfortable with this buyer at all.”

     
     

The buyer recalculates their numbers with the higher rent or changed terms and:

• Lowers the price, or

• Walks away completely

  
  

The key takeaway:

If you wait until the week before closing to involve the landlord, you’ve given them maximum leverage at the most fragile point in the process.

A better approach is to:

• Review assignment/change-of-control language well before going to market

• Build a strategy for how and when to approach the landlord

• Structure the deal so that lease issues are de-risked early, not at the finish line

  
  

3. Your Landlord Is Effectively a Second Lender

Most owners think about two major counterparties in a sale:

• The buyer

• The bank

  
  

But if you rent, your landlord is effectively a second lender with veto power:

• They control a critical asset: the right to occupy the space where your revenue is generated.

• They can say yes, no, or yes-but-only-if at a crucial moment.

  
  

From the buyer’s and the bank’s perspective, a difficult or unpredictable landlord can be:

• A major risk to future operations

• A source of unplanned cost increases

• A reason to walk away from an otherwise attractive business

  
  

That is why it is so important to prepare the landlord conversation like you would prepare a lender conversation:

• Present a clean, professional buyer package (financials, experience, plan)

• Show that the incoming buyer is stable and credible

• Set expectations with the landlord early so they are not surprised by the request for consent

  
  

If the first time your landlord hears about a sale is when someone emails them an assignment form to sign “by Friday,” you have already lost leverage.

4. Grandfathered and Nonconforming Uses Can Scare Buyers Late

Another quiet deal killer tied to real estate and leases is zoning and use.. especially when:

• Your use of the property is grandfathered in

• You operate in a way that doesn’t neatly fit current zoning, parking, or permitting standards

  
  

The business may have run that way for years without issue. But when a sophisticated buyer or their lender digs in, questions start to surface:

• “What happens if the use is ever challenged?”

• “Can we expand or modify operations here?”

• “Is there risk that the city or landlord forces changes after we buy?”

  
  

If these issues are discovered mid-diligence, they often:

• Slow the process down

• Become negotiation leverage for the buyer to push price or terms down

• In worst cases, cause the buyer or their lender to walk

  
  

A better approach is to:

• Identify any zoning, permitting, or nonconforming use issues before listing

• Clarify what is documented and what is simply “how it has always been”

• Where possible, clean up or mitigate these issues so they don’t become red flags later

  
  

Buyers are not just buying your cash flow. They are buying the stability of your operating environment. The more uncertainty, the harder they push on price and terms.

5. Treat Lease and Landlord Prep as Part of Your Exit Plan.. Not an Afterthought

The common thread in all of this is timing.

Most lease and landlord problems are:

• Manageable when identified 6-12+ months in advance

• Expensive and emotional when discovered in month 10 of a sale process

  
  

If you rent your space and are even thinking about selling in the next few years, smart preparation looks like this:

• Review your lease for:

  • Personal guarantees

  • Assignment and change-of-control clauses

  • Renewal options and term remaining

    
    

• Build a landlord strategy:

  • When will you loop them in?

  • How will you position the sale and the buyer?

  • What consent or terms do you need in writing?

    
    

• Clean up zoning and use questions:

  • Confirm what is grandfathered or nonconforming

  • Identify what documentation exists

  • Fix what can be fixed before a buyer ever sees it

    
    

This is not glamorous work. But it is often the difference between:

• A smooth, fully priced exit, and

• A deal that dies or gets repriced at the last minute over something that had nothing to do with how good your business really is.

  
  

Where an M&A Advisor Fits In

A good M&A advisor doesn’t just model your EBITDA and go find buyers. They also:

• Read your lease with a buyer’s and lender’s eye

• Flag guarantee, assignment, and landlord-consent risks early

• Help you frame the conversation with your landlord in a way that reduces friction

• Coordinate the timing so lease issues are addressed before you are deep into diligence

• Work with your other advisors (attorney, CPA, sometimes a real estate specialist) to de-risk the real estate side of the transaction

  
  

If your business relies on a leased location and you are thinking about selling.. now or in the next few years.. it is worth understanding how your lease could affect your exit before a buyer ever steps into the picture.

Clarifying this early doesn’t commit you to selling. It simply ensures that when you do decide the time is right, your landlord and your lease are supporting your exit.. not quietly standing in the way.