Initial Questions To Ask About Your Business Lease
Questions to Ask When Buying a Business or Franchise in New York or New Jersey
When busing a business one of the primary assets that you will be acquiring will be the seller’s leasehold interests in the business location. In New York and New Jersey where real estate is expensive, rent will constitute one of your largest operating expenses and will have a direct impact on the cash flow of your new business. Critically important to your business purchase, the lease agreement to be assigned to you or newly issued by the landlord must be reviewed extensively and evaluated with your business lawyer during your due diligence investigation.
When evaluating the purchase of a business, some of the initial questions that you should consider about the business lease, include:
- The remaining number of years left on the lease;
- Whether or not the landlord will consider extending the lease term;
- The fixed monthly rent charged under the lease;
- Additional monthly rent charges, such as monthly charges for property taxes, building/property maintenance, insurance and common area charges;
- Whether or not the “use clause” includes the seller’s current business activities and if the use clause is consistent with your current and future plans for the business;
- If the lease is in a shopping or mall, whether or not the lease restricts and/or prohibits the landlord from leasing space to a competitor;
- In instances involving the possible existence of pre-existing and future property contamination – such as purchase transactions involving gas stations, car washes and lube centers – the landlord’s responsibility to abate contamination and the possible existence of environmental contamination insurance. When leasing such property you should consider obtaining a Phase I environmental site assessment.
If timing prevents the completion of lease negotiations “prior” to the execution of the business purchase agreement, speak to your lawyer about adding a “lease contingency clause” to your purchase agreement.