COULD YOUR LANDLORD STOP YOU FROM SELLING YOUR BUSINESS?
Often when a buyer obtains finance from a bank to fund the acquisition of a business, the bank will require:
a mortgage be registered over the lease as security for the loan. This allows the bank to gain possession of the premises if the tenant defaults on their loan, and may appoint receivers who will continue operating the business.
Most leases contain a provision requiring the tenant to obtain the landlord’s consent before mortgaging the lease.
the landlord of the business premises sign documentation agreeing to the bank’s rights in relation to the lease. This is generally in the form of a Right of Entry.
The terms of the Right of Entry document will differ depending on the tenant’s bank. Generally, it allows the bank access to the premises to carry on the business if the tenant defaults under the mortgage, allows the bank entry to the premises to remove any secured plant and equipment and provides the bank an opportunity to remedy the tenant’s breach of the lease before the landlord takes any action to terminate the lease.
Landlords are sometimes hesitant about consenting to a mortgage of lease or signing a Right of Entry. If the landlord or its mortgagee refuse to sign off on the arrangement, it will be nearly impossible to sell your business to a buyer financed by a bank.
What can you do about it?
When you negotiate or re-negotiate your lease, where possible, include a clause requiring the Landlord not to ‘unreasonably withhold’ its consent to any mortgage over lease or any deed the tenant’s mortgagee requires the landlord to enter into.
Having a clause of this kind in your lease from the outset may prevent the landlord later stopping you from selling your business.