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Your Lease-Assignment or Assumption

Jan 29, 2013
Article #384
Author: Chuck Machado

Assignment Assumption Sublease

First realize that I am not an attorney and this should not be construed as legal advice. As always, you should contact your attorney for advice and consultation.

Restaurant owners really need to pay attention to the leases they sign. It's not true that the Landlord holds all of the cards, so understanding the language in your lease will prevent any surprises when you finally make the decision to sell your restaurant.

In order to sell your restaurant, you are going to have to get the blessing and permission of the Landlord. What? Am I crazy?

Not really. Certainly you can sell your restaurant without the Landlord's consent, but will the buyer be able to qualify for the lease? Selling your restaurant is a multi step process and it will always involve the consent of the Landlord as it relates to the buyer and his/her ability to step in as a new tenant.

This is when you will begin to pray that the lease you signed is favorable and contains the proper language, giving you the right to assign your leasehold rights to a qualified buyer.

If the language in your present lease allows for the transfer of the lease to a new buyer, will you be off the hook? Many sellers are surprised to learn they are still responsible, even years after a sale. Here's what to look for:

Assignment is the transfer of all rights to the buyer (assignee) from the seller (assignor). Normally the assignor remains liable to the landlord should the assignee fail to make the rent. The seller has no right of re-entry in the event the buyer defaults. This is successor liability. Attorney talk.

Assumption is like an Assignment except the seller is released from all liability under the terms of the lease. This is rare and it almost never happens.

Sublease is where possession is transferred to the buyer (subleasee) with the seller retaining all the same rights as though he/she were the tenant. Often this will require the rent payments be sent directly to the landlord Subleases give the seller the right of re-entry in the event the buyer defaults. the seller still must go through the same legal process as a landlord to evict a tenant.

This is a brief summary of what is involved with leases as it pertains to the transfer of a business. This is only one reason why business owners need expert representation when they decide to sell their business. Please call me to discuss if you have any interest in purchasing or selling your restaurant.

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