Tough Economy Needn’t Let Landlord Spoil Sale Of Business

June 25, 2008 - PRLog -- The current state of the economy is bringing new challenges to what always has been a major hurdle for sellers of small businesses--getting the cooperation of their landlords/ladies. But there also are opportunities inherent in these difficulties, according to Peter Siegel, MBA, founder and CEO of BizBen--Businesses for Sale in California, (www.bizben.com), the state's leading online marketplace for buyers and sellers of small and mid-market companies

“Some business owners who are trying to achieve a business sale, tell me their landlords are particularly hard to deal with right now. It’s because they are uncertain about what’s happening,” Siegel said. And he added: “This makes things really tough for a seller who might need a new lease to make the business more marketable.”

The advice he passes along is to recognize how important it is for business people to work together during difficult times. And he provides some concrete examples of how that idea can influence a business owner’s relationship with his or her lessor.

The property owner can be reminded about the benefits of having a change in management in the business.  If the current owner of the company is ready to retire, or just wants to move on to something else, a new owner can mean fresh ideas and energy for the business, and perhaps new fixtures and furnishings that upgrade the property. And a healthy business, attracting new customers to the area, is exactly what the landowner wants.

NEW LEASE WITH OPTIONS

Rewriting the lease, if the current one will soon expire--will help the seller to attract good business buyers--people who are strong financially and motivated to improve the business. That is a better alternative for a landowner, compared to the possibility of having an empty space, if the current owner decides to move, or is forced to have a “lost our lease” going-out-of-business sale.  To get an SBA backed loan to make the purchase, the buyer will need to show that the business has at least a 10-year lease. And if the landowner is uncomfortable agreeing to a long-term commitment at locked-in rates, the lease can be structured around a series of renewal options with the rent amount changed each time an option is exercised. Under this scenario, the rent increases can be tied to the cost-of-living or some other commonly used index, so that both the landowner and the business owner feel the rental rate will continue to be “fair.”

If a landowner continues to be worried about the prospect of a new tenant, the seller can agree to stay responsible on a new lease, or even one that is assigned to the buyer, for a period of time. This reassures the landowner that the rent will be paid on time, as there will be two parties responsible, rather than one. And for the seller who is reluctant to “co-sign” with a buyer on the lease--and continue to be responsible even though he, or she has sold the business-- the solution is to have the written understanding that after a certain period of time, the seller will be “off” the contract.

ASK LANDLORDS WHAT THEY’D LIKE

Siegel knows of situations where sellers asked their landlords how they would like to change the current lease, and they’ve heard some interesting and easy-to-implement answers. One landlady was bothered by the weeds growing in cracks along the sidewalk in front of her building. The seller promised that he--and the subsequent owner--would take responsibility for removing the growth and then “weeding” the location on a regular basis.

Another landlord complained about the high prices he paid the auto repair shop for sale, owned by his tenant. The business owner instituted a “discount club” and made his landlord its first (and only) member.

“If people are accustomed to believing they have competing interests-- a landowner and tenant is a good example of that--the tension can get worse when the economy slacks off,” says Siegel.

“Rather than think in those terms, we should find ways for people to work together to get what they want.”

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