Lease-Contract Assignments

When the business operates from leased premises or leases some of its business equipment, vehicles or other assets, rather than owning its own facilities and property, the ability of the buyer to take over the premises and operate the business after closing depends on the express terms and conditions of the underlying lease agreements between the seller and the owners of the premises, equipment and other property. The buyer should examine the seller’s lease agreements, determining the sufficiency of the remaining lease terms and checking for any options to extend those terms or to buy the property. Before closing, the buyer should require that the landlord and other lessors confirm in writing that the leases are in full force and that the seller is current and not in default under the leases. The buyer’s pre-closing inspection should reveal whether the seller must make repairs to the premises, property or related equipment before closing.

The buyer may want to assume leases that are needed for the business. The seller will usually want to assign the leases to the buyer, transferring ongoing lease obligations to the buyer at closing. The landlord and other lessors may or may not want to release the seller from continuing responsibility under the lease. Any required lessor consent to the assignment should be obtained before closing.

Most written lease agreements require lessor approval of any assignment, which approval sometimes may not be unreasonably withheld.

After obtaining the landlord’s approval to the lease assignment, or making other arrangements, the buyer should anticipate that utilities may be continued, but the seller should notify the utility companies when closing becomes effective in order for accounts to be transferred into the buyer’s name and for the seller to receive refund of any utility prepaids or deposits unless the buyer has reimbursed the seller for them. The buyer may also want to continue to insure the premises with the seller’s existing insurance company by continuing coverage with the insurer’s consent and by reimbursing the seller for any prepaids or deposits.