As is often the case when purchasing a small business, the business owner will be leasing its space from the building’s owner. So, in addition to purchasing the assets of the business, (As I discussed in a previous post, it is almost always preferable to purchase a business’ assets rather than purchasing its stock.) the purchaser will need to take over the seller’s rights under their lease. This is accomplished through an “Assignment and Assumption of Lease” in which the seller assigns or transfers their rights as a tenant under the lease to the purchaser, who in turn, assumes the seller’s obligations under the lease.
Most commercial leases require the landlord’s consent to such an assignment and assumption so the asset purchase agreement must be contingent upon obtaining such consent. The lease may further condition the landlord’s approval upon the payment of certain fees and the creditworthiness of the purchaser. It is important that the asset purchase agreement adequately address these issues.
Lastly, since the purchaser will be assuming all the seller’s obligations under the lease being assigned, it must be carefully reviewed before entering into the asset purchase agreement.
