The Landlord Trap in Business Acquisitions

"We'll have no trouble getting the landlord to switch the lease to a new owner."

Some sellers and listing business brokers who make this statement might genuinely believe it but are often mistaken. They haven’t taken the time to talk to the property owner.

The landlord, who collects the rent, may have very different plans. Sometimes, the business owner avoids this conversation until a viable buyer is introduced. Other times, the seller knows the landlord won’t cooperate and still downplays the issue.

Sometimes, the property owner might demand a large "lease transfer fee," holding the deal hostage. Sellers must secure a commitment from the landlord about the lease transfer before listing the business. Without this commitment, sellers may assure buyers that transferring the lease is "no problem," potentially derailing any deal if the landlord refuses to cooperate.

Real Story: A Deal That Fell Apart

Let me share a real story that highlights the importance of landlord engagement.

I worked with a proposed business buyer and a listing broker on an SBA-backed financing deal. I always instruct my clients to discuss lease negotiations with the landlord early to avoid issues like unexpected rent increases or the risk of the landlord selling the property instead of offering an extended lease.

Whenever I asked for a lease negotiation update, the buyer told me the listing broker assured him that the landlord would agree to similar lease terms. However, the buyer never actually spoke to the landlord. The listing broker kept delaying this crucial conversation, insisting everything would be fine.

As we moved through the bank underwriting process and received final credit approval, the buyer still hadn’t confirmed the lease terms with the landlord. The broker continued to push off this discussion, saying it would all work out. This raised several red flags.

When we reached the final condition for closing—securing the lease agreement—the building owner refused to allow a new lease. The owner's adult children wanted to sell the building to inherit the proceeds. Despite all efforts from the buyer and his legal counsel, nothing changed. The deal fell apart at the final hour.

The business buyer had invested about $25,000 into due diligence, trusting the business listing broker’s assurances about the landlord. Unfortunately, the deal was never funded, resulting in a complete financial and timely loss for the buyer.

Lessons Learned. The Hard Way.

As an ally to my clients, I always mentor them to "trust, but verify and verify promptly."

I warned my client of the risk, but he believed the listing broker over my recommendations.

This experience underscores the critical importance of engaging with the landlord early and securing lease agreements upfront.

For any business buyers, remember: never rely solely on the seller’s or broker’s word about landlord lease transfers. Verify with the landlord directly and do so early to avoid costly setbacks.

Stay informed, stay proactive, and always verify.

If you’re navigating a business acquisition and need guidance on securing SBA-backed funding, DM 'Source my Funds.'

With over 70 successful change of business ownership financed transactions backed by the SBA, I’m here to ensure you avoid pitfalls and achieve a smooth ownership transition.

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Deb Curtis is a dedicated ally for business buyers, prequalifying and sourcing the best SBA-backed loan projects.

With an extensive background as an SBA lender previously employed by various banks and non-bank lenders, she saw the need for a positive change in Main Street business acquisition lending to protect buyers.

Frustrated by banks' credit policies and politics, she founded her consulting firm in 2018. Known for her integrity, loyalty, and transparency, Deb focuses on quality over quantity in business acquisition loans, ensuring seamless ownership transitions for her clients.

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