SheckyS01

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Hi all,

So... I'm a complete noob about to buy an existing business. And I have what is probably a really simple, dumb question.

The current owner of the business owns the building it's in and he's offered to lease me the building so I can stay in the same location. But the rent he is asking is pretty darned high. He has refused to negotiate. It think it will be worth it in order to keep the same location, at least for a while.

My question is... what are the consequences for a tenant for breaking a lease? I've been told that I should ask for a shorter lease, since the rent is higher than I would like. But what happens if I take a 5-year lease and then decide to leave after a year? Do I pay some kind of penalty? I realize it probably varies, but what's the standard for something like this?
 

djbaxter

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Does the purchase of the business rely upon leasing the building? i.e., if you say no to the lease, will the current owner refuse to sell to you?

I know someone who got caught in a situation where the lease was too expensive and it ended up costing her the business via bankruptcy.

I think you would probably be better off turning down the lease on the current premises and finding a better deal.

To answer your question, if you sign a 5 year lease and then leave after a year, you will be in default of that lease and responsible for the balance of the lease. That would leave you trying to pay two rents. You may be able to sublease the premises if the contract permits you to do that but you remain liable for any payments on the old lease should your subtenant default, and that additional liability may mean that you cannot obtain additional credit if you require it for your business.
 

SheckyS01

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Does the purchase of the business rely upon leasing the building? i.e., if you say no to the lease, will the current owner refuse to sell to you?

I know someone who got caught in a situation where the lease was too expensive and it ended up costing her the business via bankruptcy.

I think you would probably be better off turning down the lease on the current premises and finding a better deal.

Yes and no. It's a bit complicated. The owner of the business wanted me to buy the building. But I was unwilling to do that, since I am already putting my life savings and my career on the line here. I didn't want a mortgage on top of that. So I finally convinced him to lease me the building, since keeping the existing location has a lot of value for continuity to the subscribers/customers.

To answer your question, if you sign a 5 year lease and then leave after a year, you will be in default of that lease and responsible for the balance of the lease. That would leave you trying to pay two rents. You may be able to sublease the premises if the contract permits you to do that but you remain liable for any payments on the old lease should your subtenant default, and that additional liability may mean that you cannot obtain additional credit if you require it for your business.
Yipes. That's even worse than having a mortgage. I will have to talk it over with my lawyer and make sure that's not the case. Or else get a shorter lease.
 

Dora Wi

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I second djbaxter's question, is the sale dependent on the location? If not, you would indeed be better off looking for a different place.
If you break a lease, it can have bad consequences, but the lease should come with a contract that contains the exact details of the deal, including what happens if you try to break it off before the given time period is over. I would ask the seller to see the contract and factor that in when making the final decision.
 

SheckyS01

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I second djbaxter's question, is the sale dependent on the location? If not, you would indeed be better off looking for a different place.
If you break a lease, it can have bad consequences, but the lease should come with a contract that contains the exact details of the deal, including what happens if you try to break it off before the given time period is over. I would ask the seller to see the contract and factor that in when making the final decision.
I just spoke to my attorney and he told me I should get something called a Good Guy Guarantee, which is something they have in NY commercial leasing. Apparently, that allows me to get out of the lease by paying up a few months rent (usually 3 to 6) as long as I don't owe any money and am not behind on the rent or anything like that. :)
 

djbaxter

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Ah there you go. :)

I'd never heard of the Good Guy Guarantee but that would certainly drop the financial risk for you quite a bit.
 

Dora Wi

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I just spoke to my attorney and he told me I should get something called a Good Guy Guarantee, which is something they have in NY commercial leasing. Apparently, that allows me to get out of the lease by paying up a few months rent (usually 3 to 6) as long as I don't owe any money and am not behind on the rent or anything like that. :)
That's great, I'm glad you found a solution :)
 
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