When purchasing a business, many buyers focus on financials, operations, and market positioning. But many overlook something important: Lease agreements.

If the business you’re acquiring operates out of a leased property, obtaining a copy of the lease agreement early in the buying process is critical. And there are a few other considerations you'll have to keep in mind about the lease:

1. Assumptions About Lease Transfers Can Be Misleading

If the seller of the business is a tenant rather than the property owner, many falsely assume a buyer can simply “step into” the lease agreement after closing. However, most landlords require explicit approval for any transfer of the lease to a new party. Skipping this step can create delays or even jeopardize your ability to operate the business post-acquisition.

Imagine having to immediately find a new location in addition to all the other work you'll do on the day you buy the business.

2. Change of Control Provisions May Void the Lease

Many lease agreements include change of control provisions. This means that even in stock purchase transactions- where the entity technically remains the same- ownership changes can invalidate the lease.

Without prior approval from the landlord, you could find yourself needing to negotiate entirely new lease terms, which may not be favorable.

3. Below-Market Rent: Don’t Count on It

In some cases, the seller may be enjoying a favorable, below-market rental rate as part of their lease agreement. This is especially true if they've been at the leased space for a long time. But this might not carry over to you as the new tenant.

Landlords may view the sale of the business as an opportunity to renegotiate rent at higher market rates, which could significantly impact your available cash flow.

4. SBA Requirements for Lease Terms

If you’re using an SBA loan to acquire the business, the SBA currently requires lease agreements to match the term of the loan.

Since most SBA loans are for a 10-year term, your lease agreement must also extend for 10 years- unless you are purchasing commercial real estate along with the business.

Shorter leases may need to be renegotiated or extended to comply with SBA requirements, adding another layer of complexity to the process.

5. SBA Landlord Agreement/Subordination Form

Most SBA lenders will require the landlord to sign a document called a landlord agreement or landlord subordination form. This agreement allows the SBA bank to:

• Access the property if the business defaults on the loan.
• Liquidate collateral located on-site to recover the outstanding debt.

While straightforward in principle, this can often become a sticking point in the process. Some landlords may be reluctant to sign, citing concerns about liability or other issues. To avoid delays:

• Inform the landlord as soon as possible about this requirement.
• Emphasize the importance of this agreement to the success of the deal.
• Work closely with your lender and attorney to address any concerns the landlord may raise.

Being proactive about the landlord agreement can help you avoid unexpected roadblocks that could otherwise derail or delay your deal.

If you spring this on the landlord just before closing, chances are they will be surprised and could complicate (or kill) your deal.

Take Action: Protect Your Deal

The lease agreement is more than a piece of paper—it’s a cornerstone of your deal. Be proactive:

• Request the lease early in the due diligence process.
• Review it carefully for change of control provisions, term length, and other key terms.
• Engage with the landlord early to confirm their willingness to transfer the lease, sign the landlord agreement, or negotiate new terms.

Taking these steps ensures that you avoid last-minute surprises, preserve cash flow, and set yourself up for a successful transition into business ownership.

Need Help Navigating SBA Financing or Deal Risks?

At Pioneer Capital Advisory, we specialize in helping buyers like you secure SBA financing while managing the complexities of business acquisitions. Have questions about lease terms, landlord agreements, or other requirements? Reach out to us today for expert guidance.

Until next week, stay informed and stay confident in your buying journey.

And if you’re interested in discussing how Pioneer Capital Advisory can help you on your journey, you can schedule a time to connect with me directly using this link: Schedule a Call.

Take care,

Matthias

🌐 Visit us at pioneercapitaladvisory.com​

Disclaimer: The information in this newsletter is for informational purposes only and should not be considered legal or financial advice. Business buyers are encouraged to consult with their legal counsel and accountant to ensure the proper structuring of their transactions and to fully understand the tax implications of seller financing.

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