The Lease Issue That Can Derail a Business Sale (Even When the Price Is Agreed)
In many business sales, the purchase price is treated as the key milestone.
Once agreed, parties often assume the transaction is largely settled, with the remaining steps being procedural.
In practice, that is rarely the case.
Some of the most significant issues arise after the contract is signed — and more often than not, they relate to the lease.
For many businesses, particularly in retail and hospitality, the lease is not incidental to the transaction. It is fundamental to it.
Why the lease is central to the deal
A purchaser is not simply acquiring assets or goodwill.
They are acquiring the right to operate from a particular premises, on particular terms.
The commercial value of the business is therefore directly tied to the lease, including:
the remaining term and any options
rent, outgoings and review mechanisms
permitted use and exclusivity
obligations to refurbish, upgrade or “make good”
A well-structured lease can support the value of a business.
A problematic lease can materially undermine it.
The assumption that causes the most issues
A common (and costly) misconception is that the lease can simply be transferred at settlement.
Most leases do not allow this.
Instead, they require landlord involvement, typically including:
formal consent to assignment
financial and business information from the incoming purchaser
payment of the landlord’s legal and administrative costs
rectification of any existing breaches
In more structured environments — such as shopping centres — the process can be even more prescriptive.
It is not uncommon for landlords to require:
entry into a new lease or renewal by the existing tenant first; and
a subsequent deed of assignment transferring both the existing and new lease to the purchaser
This structure can be counterintuitive and is often not anticipated by the parties at the outset.
Where transactions begin to unravel
Lease-related issues tend to emerge at precisely the point where parties expect the deal to be progressing toward settlement.
Common examples include:
Landlord approval risk
A purchaser may be commercially suitable to the vendor, but not meet the landlord’s requirements (financial capacity, experience, use). Approval is not guaranteed.
Outstanding lease obligations
A lease may require works to be completed (for example, refurbishment, compliance upgrades, or removal of unauthorised alterations) before assignment will be approved.
Misalignment on lease term
A purchaser may expect a longer tenure, only to discover that the remaining term is limited or options are not secured.
Shopping centre requirements
Centre management may impose conditions as part of consent — including store upgrades, branding requirements, or compliance with design standards — which can carry significant cost.
Timing pressure
Lease consent processes often take longer than anticipated, particularly where multiple parties are involved. This can place pressure on agreed settlement dates.
The practical consequence
Unlike other aspects of the transaction, the lease introduces a third party — the landlord — whose consent is critical.
Without that consent:
the purchaser cannot step into the lease
the business may not be able to operate from the premises
settlement may need to be delayed, restructured, or in some cases may not proceed
This shifts the transaction from a bilateral negotiation to a three-party process, with its own dynamics and risks.
How these risks are managed
Well-advised transactions typically address lease risk upfront, rather than reactively.
This may include:
making the contract conditional on landlord consent
clearly allocating responsibility for obtaining that consent
specifying who bears the cost of landlord fees and any required works
allowing sufficient time for the approval process
engaging with the landlord or managing agent early to identify issues
Clarity at the outset is critical. Assumptions tend to become disputes.
The takeaway
In many business sales, the lease is not a secondary document — it is a determining factor in whether the transaction can complete.
A deal that appears commercially agreed can still encounter significant friction if the lease position is not properly understood and structured.
Final thought
A business may be negotiated in days.
Whether it settles often depends on a lease negotiated years earlier — and how it is dealt with in the present transaction.
Disclaimer
This insight is general information only and does not constitute legal advice. Lease requirements and business sale structures vary depending on the terms of the lease and the circumstances of the parties involved.