Expert: Stephen A. Cross, CCIM - 6/13/2011

Question
QUESTION: Hi,
My profitable business is currently for sale through a business broker.  We found a cash buyer and everything was running smoothly until my landlord was not returning calls or emails.  Eventually the landlord met with the prospective buyer and the buyer told me that they could not reach an agreement on the lease and that the landlord did not like the fact that the buyer was not in the same industry as my business.  The buyer backed out. The landlord told me that the buyer did not have problems with the lease, rather the sale of my business.  My landlord does not do anything for our building and basically all of the tenants are frustrated with her lack of help, response, care for our building and businesses.  My questions are:

Does my landlord have the right to discuss MY business or should they just stick to the lease information and qualifications?

I have struggled very hard with my business because I just went through a horrible divorce and my personal life affected my business finances-I took money from my business-is it her right to tell me that she will screen prospective buyers as long as my rent is paid on time?

I am in a dire straights situation and I am frustrated that she turned away a buyer with cash and excellent credit.

I am also frustrated that she never even returned my phone calls or emails regarding the sale, the prospective buyer and also refrains from telling my broker and I what her expectations are (lease length, qualifications, price) of a prospective buyer/leasee.

I have a feeling that she is trying to get me to move out and then lease my space.  I did a huge buildout and I am frustrated that I feel that she is making it difficult to sell my business.

Thanks in advance!
Jo

ANSWER: Jo:

Your ability to transfer the "bundle of rights" contained within the four corners of the lease is typically contained in the Assignment section of the lease. Your business broker should be able to explain your rights to assign and/or transfer the lease. Of note is that a change in the use (or industry) may be grounds for the landlord to deny an assignment.

Regarding rental payments: If you do not make timely rental payments you will likely be in default, which can be very serious.   

In this instance, I suggest that you review your lease with an attorney versed in commercial real estate contracts (it shouldn't take more than an hour for a competent attorney to review the entire lease and comment on your rights).

In the future, negotiations and communications with your landlord of this nature should be done in writing via the U.S. mail, with the letters certified, return receipt requested.       

Very truly yours,

Steve

---------- FOLLOW-UP ----------

QUESTION: Steve,
Thank you for your response!  I am now on a month to month lease and I have paid my rent late by a few days-3 or 4 max and have always been in communication with the landlord, but rarely receive communication back from her.

The space would not be changing use because it is a hair salon.

Do you have any other insight? Do you have a referral for an attorney?  

Thanks,
Jo

ANSWER: Jo:

The critical piece of the puzzle is the month-to-month tenancy. Without a lease for a period of years you have nothing to sell, and have no leverage with the landlord.  

I suggest attempting to negotiate a lease extension for 3 to 5 years with several options to renew the term. Of note is that both the lease and the options must be transferable to a buyer (in the same industry) who has financials and experience similar to yours and whom the landlord would reasonably lease to.

Regarding attorneys: My business is in Arizona and I can refer you to qualified professionals in the metro Phoenix area.

Very truly yours,
Steve

---------- FOLLOW-UP ----------

QUESTION: Steve,
Nothing to sell...even if I finished a 3 year lease and now going on my 4th year of business in the same location?
Jo

Answer
Jo:

Without a lease for a period of years that is transferrable, the improvements, FF&E (Furniture, Fixtures and Equipment) and goodwill you have generated have no value to a buyer.

Before marketing your business I suggest attending to the underlying lease.

Steve