Commercial tenant wants to sell his business

Commercial Real Estate Investing
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Commercial tenant wants to sell his business

Vierra Wong
Rental Property Investor · Member since 2020 · 19 posts · 4 votes

Hi,

We have a commercial restaurant tenant that is interested in selling his business to one of his employees (the chef).  The prospective tenant has good personal credit however does not have much in assets nor very much restaurant management experience. What criteria should I look for in order to approve an assignment of the lease to a new tenant?  I'm thinking about increasing the deposit or requiring some sort of co-signer to help accommodate the transfer.  Any advice is much appreciated. Thank you!

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Account Closed
PA · Member since 2010 · 339 posts · 168 votes
4y

I forgot how to say this in LeaseSpeak, but you should set it up like a sublet where the current tenant is still bound by the contract. If the new tenant fails, the original tenant has to take over payments.

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  • Andrew Shrigley
    Real Estate Agent · Fayetteville, AR · Member since 2022 · 10 posts · 6 votes
    4y

    Hi Vierra, 

    I am in a similar situation. Unfortunately I don't have any useful at this point insight but I'm looking forward to the responses on this thread! I think both your idea to increase deposit and require co-signer make since. From what I understand running a restaurant is a tough business with tight margins. If the new owner is not business savvy things could go south quick. be sure to update with your final approach to new lease. 

    Andrew

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  • Account Closed
    PA · Member since 2010 · 339 posts · 168 votes
    4y

    I forgot how to say this in LeaseSpeak, but you should set it up like a sublet where the current tenant is still bound by the contract. If the new tenant fails, the original tenant has to take over payments.

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  • Michael Voss
    New to Real Estate · Orlando · Member since 2021 · 9 posts · 4 votes
    4y

    More than likely what I would try and do is make the original tenant you have leave some skin in the game because he was the one who got the lease originally. So I would hold his deposit and write into the lease he has to mentor the new business owner for at least 12-18 months (weekly, monthly, zoom, face to face, something). Also, if that portion isn't upheld rent would increase until deposit is 2-3 months rent. That way everyone has a chance to win and you are secure. 

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  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    4y

    You absolutely keep the original tenant. There's no reason to give them up, I'd try to find a new guarantor if the new tenant doesn't have strong backing. Add some people into your web...

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    4y

    You need to read your current lease and see what it allows for current tenant selling of the business and landlord approvals.

    Definitely if potential new tenant is weak and current tenant is strong with a personal guarantee then look to keep them on. I have seen great businesses go out before when sold off to an inexperienced or poor operator. They tend to focus on the wrong things and the business starts a downhill slide.

    Alos when you take on a weaker operator it can change the cap rate value of your center and what a buyer is willing to pay in the future for it.

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