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When Multiple Premises are Required to Operate a Business

October 12, 2020 by admin

Whether negotiating directly with a landlord to lease premises or considering the lease of premises when purchasing a business, caution should be exercised if there are multiple premises under separate leases with different landlords which are required to operate the business in one location. Here are a few factors to consider:

 The term and any further terms of all the leases should terminate on the same day. This will allow a tenant to terminate all the leases at the same time if it wishes to cease the business operations or relocate to alternative premises. This may require extensive negotiations if there are different end dates as there is no certainty that each landlord will agree to align the terms if it results in an earlier termination of their lease. If all the leases cannot be terminated on the same day the tenant will have to continue to pay rent until any unexpired lease has expired or negotiate a surrender of the lease(s) which could result in the tenant having to compensate the landlord/s for the early termination of the lease(s).

When a business is sold, the sale of business agreement is usually subject to the transfer of the lease to the purchaser. Where there are multiple leases, if one landlord does not consent to the transfer of a lease, the sale of business agreement may be terminated by the purchaser resulting in the costs incurred not being recoverable. This can cause delays in completing the transaction as it will take more time to obtain the consent to transfer the leases from each landlord particularly if one or more landlords are slow to respond or are difficult. It is beneficial to sell the business to a purchaser with sufficient financial resources and business experience to minimise any objections from the landlords.

Multiple leases add to business expenses as each time the leases are renewed for a further term, the renewal costs will be multiplied by the number of leases to be renewed.  Also, various issues will invariably arise under each lease from time to time adding to further costs.

A tenant enters a lease hoping that the landlord is fair and reasonable and that the parties can act in good faith to resolve any issues or disputes that may arise under the terms of the lease. The probability of having a harmonious relationship with the landlord is diminished by virtue of the number of leases that are required to operate the business as each landlord will be different by way of personality, business style and business requirements generally.

Multiple leases can result in the business becoming more difficult to sell as prospective purchasers may be reluctant to take on such additional risk and such risk may be factored into the purchase price.

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