Once you have decided to start a business, you will be confronted with two business models to choose from. One involves starting a new business, and the other includes taking up an existing business which may or may not be a franchise business.
Even though, you may take up any one of the two business models outlined, doing due diligence and company research can help in saving a lot of unpleasant surprises at the time of closing. You may end up spending more time or money than is warranted, if the due diligence is not done on time.
It is advisable to get in touch with a good Real Estate Lawyer who is well-versed with the purchase of a business in leased premises.
Once you have decided to purchase a business, your Real Estate Lawyer will provide the below services:
- Analyze the agreement of sale and purchase in detail
- Review statutory liens and search for any outstanding amounts under business, corporation and other taxes
- Analyze the bills of sale
- Draft and prepare any personal property security agreement as needed
- Search the applicable legislations like the Bankruptcy Act, Bank Act, Bill of Sale Act, Corporation Securities Registration Act, Personal Property Security Act, and other relevant legislation.
- Search for all executions and litigations as needed
Factors to Consider in Purchasing a Business in a Leased Premises
Entering into a lease is a business contract which is legally binding. It is essential to review certain areas of the lease agreement before you sign the purchase agreement of the business which is operating in a leased premise.
The duration of a commercial lease is typically between 3-10 years with options to renew with a mechanism to determine the new rents. It is recommended to have your Real Estate Lawyer review the terms of lease before you make the purchase agreement final.
Landlords tend to protect themselves by including escalation clauses in the agreement so while purchasing the business on a leased premise, you will need to review the agreement with your Commercial Real Estate Lawyer. You will have to make sure that you are paying only for the CPI portion of the inflation apart from the agreed increases in taxes and direct operating costs.
Sub-leasing Your Leased Property
Discuss the possibility of expansion of your business or movement to another location in case it happens before the end of lease tenure. Sub-leasing can be undertaken if this has been previously discussed with your landlord or there is provision in the lease. Generally, you will need consent of your landlord. Make sure that the sub-tenant meets the requirements of the landlord for an ideal tenant and remember that you will be ultimately responsible in case any issues arise with the sub-leasing.
Renewing your lease
Renewal of the lease needs to be done with adequate clauses put into the agreement. This is essential as once the lease is over, your landlord is under no obligation to offer you the space which you once occupied. Leases have the provision to renew automatically or upon written confirmation of the intention to renew the lease.
For the possibility of your landlord going bankrupt, a non-disturbance clause can be included into the agreement which protects you against the premature end of the lease. This clause provides for the lease continuation for loan foreclosure circumstances.
Majority of the landlords carry insurance for their building covering liability for all common areas including the lobby, elevators and the stairs. It also covers the building for casualty protection. Landlords also demand the tenants to carry insurance for claims which may arise from the tenant’s actions. Any contents and improvements coverage can also be included by the landlord’s investment in the property.
Consult your Commercial Real Estate Lawyer to ensure that your insurance policy is compatible with your landlord’s insurance policy.
Since building services are part of the lease, make sure that their terms and conditions are agreeable to you and discuss the points which you would like to renegotiate. Building services can include HVAC, electricity and cleaning services. If you are planning to install electrical machinery, check with your landlord if any limits will be applicable. Remember to get all the agreed details in writing.
Office buildings have provisions for improvements, and these should be in writing to make sure the owner of the improvements is clear and specified. Get the cost estimation from a contractor before signing the lease.
How We Can Help
At Nanda & Associate Lawyers, our experienced Real Estate lawyers understand your specific circumstances and provide tailored and customized solutions for each of them.
Our Mississauga Real Estate Lawyers are available for a no-obligation free consultation. Come and experience our quality legal counsel and personalized care we give to each client. We ensure prompt communication and a professional approach to achieve successful outcomes for you.
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