A lease option gives the holder of the option the right to exercise his or her right to continue with the lease for a specified period of time. The lease option is usually in control of by the tenant. A lease option is a unilateral contract, meaning one side has all the power while the other side is powerless. This is one of the few times a landlord is at a disadvantage...well, a little bit in any case.
So one holding the option at the end of the term can decide whether to continue with the lease or not. The landlord has no say in that decision. However, the landlord will almost always have restrictive language in the option agreement.
It is this restrictive language that can make it difficult for a tenant and restaurant owner to sell their business. The most common restrictive language is as follows:
1. Making the lease personal to the tenant. This means the option isn't transferrable to a buyer. This gives the landlord more control over the transfer of the lease, giving them some negotiating strength with a new tenant. Often a landlord will allow the option to transfer, but make sure such language is clear in the lease assignment agreement.
2. The rent increase in the option is high. Again this gives the landlord the power to boot you out if the business isn't sustainable under the new high rent.
3. The timeframe when the tenant has to give notice to the landlord of whether or not the option is going to be exercised can be limited and restrictive in timeframe and in form. You mess-up either the timeframe or form, you lose the option. So make the language as simple and clear as possible and follow it to a T!
That's it for now folks!
We at SellingRestaurants feel obligated to educate the public, our customers and our clients with information that can help them make more intelligent buying and selling decisions.
Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry. Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer. Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world. There he participated in more than $11.5 billion of merger and acquisition transactions. He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University. Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.