Navigating business transactions can be a high-stakes game, especially when it comes to handling commercial leases. Whether you’re eyeing an asset purchase or a share purchase, a business acquisition should take into account the commercial lease.
Understanding an Asset Purchase and Share Purchase
How you approach a lease transfer in a business acquisition will depend on whether you are purchasing the assets or shares of the business.
In an asset purchase, you “cherry-pick” the intangible and tangible assets to acquire. This includes a company’s intellectual property, equipment, inventory, and client list. Asset purchases are attractive because they allow a buyer to acquire assets free of the business’s liabilities.
In a share purchase a buyer, either individually or through a corporation, purchases the entirety of the issued and outstanding shares of another corporation. By doing so, the new shareholder steps into the shoes of the previous one, without disrupting the entity. These sales require scrutiny as a share purchase means the new shareholder becomes responsible for both assets and liabilities.
Specific Considerations for Leases in an Asset Purchase
In an asset purchase, the landlord’s intervention is required to transfer the lease from seller to buyer, making the landlord an important part of the transaction. Generally, the buyer will want assurances from the landlord that they will either assign them the lease or will be open to negotiating terms and drafting a new lease. This has advantages and disadvantages, as it allows for potential renegotiation of the lease but also requires navigating the landlord’s terms and conditions. The buyer should also ensure that the lease terms align their long-term business plans. Starting this process early in the transaction helps facilitate a smoother transition.
Specific Considerations for Leases in a Share Purchase
In a share purchase, the lease is untouched because the business entity itself do es not change. This continuity can be advantageous, as it avoids the complexities of lease assignment. However, it's important to be aware of any change of control provisions in the lease agreement. These provisions may be triggered by the change in ownership, potentially giving the landlord certain rights, such as the ability to terminate the lease.
Notifying the landlord about the change in control is crucial in a share purchase. This might include providing the landlord with documentation of the change in ownership and reassurances regarding the continuity of the business operations. The buyer should proactively engage with the landlord to mitigate potential risks and ensure the ownership transition will not disrupt the ongoing lease agreement.
Conclusion
Understanding how a commercial lease comes into play in an asset and share purchase is essential for a smooth business transaction. At Astre Legal, we’re here to guide you through every step, ensuring your lease agreements align with your business goals. Reach out to us for assistance, and let’s navigate these complexities together.
This blog post is not legal advice and is for general informational purposes only. Always speak with a lawyer before acting on any of the information contained herein.
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