What happens to the lease when you buy a business?

What are the options for taking over the lease?

• Assignment. The seller transfers the existing lease to your company with the landlord's consent. The seller often stays liable unless the landlord releases them.
• Assignment and amendment. The same, plus changes you negotiate at the same time, such as a longer term or new renewal options.
• A new lease. Your company signs a fresh lease directly with the landlord. This is common when the old lease is short or the seller wants a clean release.
• Sublease. The seller stays the tenant and sublets to you. Lenders and buyers usually dislike this, because your right to the space depends on the seller staying in good standing.
• Stock purchase. The lease stays with the company you buy. Read it for change-of-control language, which can treat a share sale as an assignment.

What will the landlord want?

Consent is a negotiation. Most leases require the landlord's consent to assign. Some say consent cannot be unreasonably withheld. Others give the landlord full discretion. Your lawyer will tell you which you have.

• Your financial statements, a resume and a description of how you will run the business.
• A personal guarantee from you, and sometimes a larger security deposit.
• Reimbursement of the landlord's legal fees for the consent.
• Sometimes a rent increase or other changes in exchange for consent.

Ask the seller to introduce you to the landlord early, right after the letter of intent is signed. For SBA deals, letter of intent to closing typically takes 60 to 120 days. A slow landlord is a common reason that window slips.

What should you check in the lease before you sign?

• Remaining term and renewal options. Lenders generally want the term, with options, to cover the loan. Confirm the requirement with your lender.
• Rent escalations and pass-throughs. Scheduled increases, common area charges, taxes, insurance and any percentage rent.
• Relocation and redevelopment clauses. Some let the landlord move you or end the lease. Either can end a location-dependent business.
• Permitted use and exclusives. Make sure the use clause covers what you plan to do, and check whether you have an exclusive in the center.
• Future assignment rights. Ask for the right to assign to an affiliate or a buyer of the business without new consent. You will want it when you place the business under a holding company or sell it.
• Estoppel certificate. Ask the landlord to confirm in writing the rent, term, deposit and that there are no defaults.

How does rent affect what a bank will lend?

As of October 2026, an SBA Initial Acquisition must show debt service coverage of at least 1.25x on historical or adjusted historical cash flow. Projections cannot be used to meet the test. A known rent increase comes straight out of the cash flow the lender counts.

Rent is often the swing factor in leased businesses. In laundromat data, only a minority of leased laundromats cleared 1.25x coverage after paying the owner a $60,000 salary.

Should you buy the building instead?

If the seller owns the real estate, you can buy it, lease it, or lease it with an option to buy later. As of October 2026, the real estate portion of a 7(a) loan can amortize over up to 25 years. The business portion stays at up to 10 years. SOP 50 10 8.1 removed the blended 25-year amortization on mixed deals. A single borrower, including affiliates, can borrow up to $5 million under 7(a), with combined 7(a) and 504 capacity of $10 million.

Buying the building adds cash and debt to the deal. Many buyers lease from the seller on a long lease with a purchase option instead. Owners who buy real estate often hold it in a separate entity that leases to the operating company. Confirm that structure with your CPA and lender.

Worked example: what a $36,000 rent increase costs you in borrowing power

Illustrative figures, using the SBA maximum variable rate of 10% for loans over $350,000 as of September 2026 (prime of 7% plus 3%). Check current prime.

• Adjusted historical cash flow available for debt service: $360,000.
• Most annual debt service at 1.25x: $360,000 ÷ 1.25 = $288,000.
• The new lease raises rent by $36,000 a year. Cash flow falls to $324,000.
• New maximum debt service: $324,000 ÷ 1.25 = $259,200.
• Lost debt capacity: $288,000 − $259,200 = $28,800 a year.
• On a 10-year loan at 10%, $28,800 a year of payments supports about $181,600 of principal.

So a $36,000 rent increase cuts the loan this business can support by about $180,000. The difference comes from your cash, the seller's note or a lower price.

Where these numbers come from: The 1.25x coverage test, the 10-year and 25-year amortization limits and the removal of blended amortization are from SBA SOP 50 10 8.1, summarized by Beancount's SOP 50 10 8.1 guide and Cantrell Firm. Loan caps are from the SBA 7(a) program page. The maximum rate is from NerdWallet's SBA rate summary. Laundromat coverage data is from BigIdeasDB. The 60 to 120 day timeline is from BizBuySell. SOP 50 10 8.1 applies to loans numbered on or after October 1, 2026; lender practice under it is still settling and these are secondary summaries, so confirm current terms with your SBA lender.

Related questions

Will the seller stay on the lease as a guarantor?

Sellers want a full release. Landlords often want to keep the seller's guarantee. A common compromise is a release after a period of on-time payment by the new tenant. Negotiate it in the consent document.

What if the landlord refuses consent?

Check whether the lease says consent cannot be unreasonably withheld. If it does not, you may need a new lease, a new location, or to walk away. That is why landlord consent should be a closing condition.

Is a month-to-month lease a deal killer?

For a location-dependent business, usually yes until it is fixed. You could be asked to leave soon after closing, and most lenders will not accept it. Negotiate a term lease as a condition of closing.

Who pays the landlord's legal fees?

The lease usually puts them on the tenant, which is the seller before closing. Decide in the purchase agreement who bears them.

What comes next

With the lease settled, the next thing to negotiate is how the price is split across what you bought, which drives both sides' taxes: what is purchase price allocation (Form 8594), and why does it matter? Buyers who plan to own several businesses should write affiliate assignment rights into every lease from the first one.

Related articles

• Asset purchase or stock purchase: which should a buyer choose?
• What is a working capital peg?
• How much will a bank lend to buy a business?
• Is buying a laundromat a good investment?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.