Getting Landlord Consent to Assign Your Lease

Why the Landlord Usually Sets the Pace of Your Sale

Commercial rents in San Francisco are high and most smaller companies lease. A buyer is paying for your earnings, but those earnings depend on staying at your address on terms that still work.

That puts the landlord in the deal even though they are not a party to the price. Nearly every commercial lease limits assignment. Many require written consent.

Some let the landlord refuse for broad reasons, or charge a fee, or reset the rent on transfer. You will not know which kind you have until you read it.

Buyers, lenders and escrow all wait on that consent. You can have a signed purchase agreement, approved financing and a clean diligence file, and still sit idle for weeks because a property manager has not answered an email.

Your buyer negotiates the price. Your landlord decides whether the price ever gets paid.

Read the Assignment Clause Before You List

Pull the lease and every amendment out of the drawer now. Look for the section on assignment and subletting, and read it slowly. The wording matters more than the heading.

Note whether consent "may not be unreasonably withheld" or whether the landlord has sole discretion. Check for a recapture right, which lets the landlord end the lease instead of approving the transfer.

Look for transfer fees, profit sharing and any rent increase tied to assignment.

If your company is an entity, see whether a change in ownership of the entity counts as an assignment. Many leases say it does. That point comes up again when you decide between an asset sale and a stock sale.

What Will the Landlord Ask to See From Your Buyer?

A landlord approving an assignment is choosing a new tenant. They will underwrite your buyer the way they would anyone else applying for the space, and sometimes more strictly, because they did not pick this person.

The usual request looks like this:

• Personal financial statements and recent tax returns for the buyer
• Bank statements or proof of the cash going into the deal
• A resume showing experience running a similar operation
• A short business plan, especially if the buyer intends changes to the space or use
• A personal guarantee from the buyer, often with a larger security deposit

The personal guarantee is the one that stalls deals. Many buyers expect it. Some buyers using a holding company resist it.

Find out early whether your buyer will sign one, and whether the landlord might accept a capped or declining guarantee instead.

Assignment and a New Lease Are Different Deals for You

With an assignment, the buyer steps into your existing lease. Same rent, same term, same options. That is usually best for the buyer if your rent is reasonable, and it is often faster.

A new lease means the landlord and your buyer sign a fresh agreement and your lease ends. The landlord may use the moment to raise rent to market, change the term or add new obligations.

From your side, a new lease has one large advantage: it usually ends your obligations to the landlord at closing. An assignment, unless the landlord agrees otherwise, does not.

You Can Stay on the Hook After You Leave

This is the part sellers tend to learn late. Under most commercial leases, assigning the lease does not release the original tenant. If the buyer stops paying rent in year three, the landlord can often come back to you.

If you signed a personal guarantee when you opened, that guarantee may survive the sale too. Read it separately from the lease. Some guarantees end on assignment. Many do not.

Ask for a written release of you and any guarantor as part of the landlord's consent. Landlords do not always agree, but they agree more often when the buyer is strong and provides its own guarantee.

If a full release is refused, ask for a release after a set period of on time payments.

An Estoppel Certificate Settles What Is True Today

An estoppel certificate is a signed statement from the landlord confirming the lease's current facts: the rent, the expiration date, the remaining options, the deposit held, and that no default exists.

Buyers and their lenders want one because it stops the landlord from later claiming something different. It also protects you, since it confirms in writing that you are leaving in good standing.

Before you request one, settle any open issues. Unpaid common area charges, an unapproved alteration or a late rent pattern will show up here, and it is easier to fix them quietly beforehand.

Remaining Term and Options Move Your Price

A buyer underwrites the years they can count on. Lenders think the same way. Many want the lease, including options, to run at least as long as the loan they are making. Short term means fewer buyers and lower offers.

Here is an illustrative example with round numbers, not a quote. Say a company earns $400,000 a year in SDE and comparable companies trade near 2.5 times earnings.

With eight years left plus a five year option, a $1,000,000 price is easy to finance.

Now give the same company eighteen months left and no option. Many lenders will pass. A cash buyer may still bid, but likely well below $1,000,000, because they are pricing the risk of a rent reset or a move.

The fix is often an extension or a new option negotiated before you go to market, while you are still the tenant the landlord knows. Our valuation page covers how term and rent feed into price.

When to Approach the Landlord and What to Bring

Too early and you risk the news spreading, or a landlord who starts planning around your exit. Too late and consent becomes the reason a closing date slips. For most sellers the right moment is soon after a signed LOI.

Go in prepared. Bring a short introduction letter, the buyer's package, a proposed form of consent, and your request for a release. Ask the landlord what fee and review time they expect. Then put that timeline into the purchase agreement.

A few questions to answer for yourself before that meeting.

Is my rent at, above or below market? Am I current on every charge? Is there anything in the space the landlord has not approved? Do I want out of my guarantee, and what will I trade for it?

If your company has an extension conversation coming anyway, consider having it first.

A landlord often finds it easier to grant a new option to a tenant of many years than to a stranger. The sale process page shows where this fits in the larger timeline.

This is general information, not legal advice. Lease terms vary widely, and the details of consent, release and guarantees should be confirmed with your real estate attorney before you sign anything.

If you want a view on how your lease affects what your company could sell for, request an estimate or call (415) 555-0163.