If your business trades from leased premises, the lease can be one of the biggest deal blockers. Check assignment, landlord consent, rent, service charge, repair obligations, use restrictions, rent review and buyer approval before listing.
Quick Answer
Yes, many leasehold businesses are sold successfully every year. But the lease is one of the most consequential documents in any business sale involving premises, and sellers who have not reviewed it carefully before listing frequently encounter avoidable delays and complications.
A business sale does not automatically transfer the lease to the buyer. In most commercial leases, the tenant's right to assign the lease to a new occupier is conditional on the landlord's consent. The conditions a landlord can impose vary — references, a rent deposit, a personal guarantee from the buyer, formal legal documentation — and the time it takes to obtain consent can add weeks or months to the completion timeline. Where the lease cannot be assigned at all, or where the remaining term is too short to give the buyer confidence, the entire transaction may be at risk unless alternative arrangements can be made.
Understanding the lease position before listing is therefore one of the most important steps a seller can take. A commercial property solicitor should review the lease before any buyer is told the premises are part of the deal.
Contents
Why the lease matters to buyers
For most businesses that trade from physical premises — a café, shop, salon, gym, workshop, dental practice, takeaway or office-based service — the premises are not incidental to the business: they are central to it. A buyer acquiring this kind of business is not just buying the goodwill and assets; they are acquiring the right to operate from a specific location that may have taken years to build a customer base around.
Buyers will therefore examine the lease carefully and ask several core questions before committing to an offer. Can I actually trade from these premises after completion? Can the lease transfer to me legally, and on what conditions? How long is left on the term, and what happens when it expires? What is the total cost of occupation — rent, service charge, rates, and any other charges? Are there repair obligations that could create a financial liability I am not expecting? Are there restrictions on how I can use the premises that might affect my intended operation?
These are not afterthought questions — they are questions a buyer's solicitor will focus on in detail during due diligence. If the answers are uncertain, incomplete or unfavourable, buyers either hesitate, reduce their offer to reflect the risk, or walk away. Sellers who do not understand their own lease position before going to market are allowing a preventable uncertainty to undermine the sale.
Check whether assignment is allowed
Lease assignment is the legal mechanism by which a commercial tenant transfers their lease to a new occupier. In the context of a business sale, assignment is how the buyer takes over the existing lease from the seller.
Most commercial leases permit assignment, but typically only with the landlord's prior written consent. Some leases impose additional conditions: a requirement for an Authorised Guarantee Agreement (AGA) from the seller, under which the seller guarantees the buyer's future obligations under the lease; restrictions on assignment during the first or last year of the term; a requirement that the assignment covers the whole premises rather than a part; or a prohibition on subletting.
Some leases prohibit assignment entirely. Where this is the case, the seller cannot simply hand the lease to the buyer — the buyer will need to negotiate a new direct lease with the landlord, or the transaction will need to be structured differently.
Sellers sometimes assume they know what the lease allows without checking the document carefully. This is a significant risk. The assignment clause may contain conditions the seller is not aware of, or may have been amended by a deed of variation that is filed separately from the original lease. A commercial property solicitor should review the lease — including any side agreements, licences and correspondence with the landlord — before the seller tells any buyer that the lease can transfer.
The position should also be checked in the context of the transaction structure. In a share sale, where the buyer acquires the company rather than its assets, the lease technically stays with the company. Many commercial leases contain change-of-control provisions that trigger the same consent requirement even in a share sale. If this applies, the solicitor needs to address it as part of the transaction planning.
Landlord consent
Where landlord consent is required, the seller and buyer need to approach the landlord at the right stage of the process. The timing of this approach requires care: contacting the landlord too early risks the sale becoming known before it is secure; leaving it too late risks completion delays.
When consent is sought, the landlord may ask for information about the proposed buyer before deciding whether to approve the assignment. This typically includes references — often from the buyer's bank and from a commercial referee — and financial information demonstrating the buyer's ability to meet the rental obligations. The landlord may also require a rent deposit, which is a lump sum held by the landlord as security against non-payment. A personal guarantee from the buyer — and in some cases an AGA from the seller — may also be conditions of consent.
The landlord will typically instruct their own solicitor to prepare the formal licence to assign, and the buyer and seller may be asked to contribute to the landlord's reasonable legal costs. These costs, and the time it takes to exchange formal documentation, can add meaningful weeks to the completion process.
Landlords are generally not permitted to unreasonably withhold consent to a straightforward assignment by a creditworthy buyer, but they are entitled to take a reasonable time to assess the application and impose reasonable conditions. Where a landlord is slow to respond, or imposes onerous conditions, it can create a significant bottleneck in the sale.
The timing of approaching the landlord should be discussed with the seller's commercial property solicitor, with confidentiality clearly in mind. Premature disclosure to a landlord who then mentions the sale to another tenant — or who uses the leverage of the assignment process to push for a higher rent on renewal — can cause real damage. Managing this carefully is an important part of the sale process.
Lease term, renewal and break clauses
The amount of time remaining on the lease is one of the first questions a buyer will ask about premises. A short remaining term creates uncertainty: the buyer may not be able to commit to the location for long enough to justify the investment in the business, and they may face a rent review or renewal negotiation with the landlord shortly after completion.
Sellers should know the lease start date, the expiry date, and the position on security of tenure. Many commercial leases operate under the Landlord and Tenant Act 1954, which gives business tenants a right to renew on reasonable terms at the end of the lease period. If the lease operates inside the Act, the buyer has statutory renewal rights that provide some protection. If the lease was contracted out of the Act, the buyer has no statutory right to renew, and when the lease expires they either negotiate a new lease or vacate. Buyers will want to know which regime applies.
Break clauses — provisions allowing either party to end the lease before the expiry date on notice — should be identified and their conditions checked. A break clause in the landlord's favour creates risk for the buyer. A break clause in the tenant's favour may be attractive to the buyer but must be checked for the conditions attached: break clauses often have strict notice requirements and compliance conditions that, if not met, cause the break option to be lost.
Rent review dates are also important to identify. If a rent review is imminent, the buyer faces an uncertain future rental cost. If a review has already been triggered but not yet completed, there may be a corresponding rental liability pending.
Any notices that have been served — whether by the landlord or the tenant — under the lease should be disclosed. This includes section 25 notices (from the landlord) or section 26 notices (from the tenant) under the 1954 Act, which begin the formal process of lease renewal or termination.
Rent, service charge and rates
Buyers need to understand the full cost of occupying the premises, not just the headline rent figure. The total occupation cost affects the profit they can realistically maintain from the business and therefore the price they are willing to pay.
Prepare a clear written summary of: the current annual rent; whether VAT is charged on the rent (some leases have an option to tax the rent, making it subject to VAT); the service charge — the landlord's charge for maintaining the building and common parts; any insurance recharge; business rates (the rateable value and the actual rates payable after any relief); utility costs where relevant; waste and cleaning charges; and any other regular payments to the landlord.
Also disclose any rent arrears clearly and honestly. A buyer who discovers undisclosed arrears during due diligence will lose confidence in the seller's overall disclosure. An upcoming rent review that could materially change the rent should also be mentioned, along with the current thinking on what the reviewed rent might be.
Buyers financing the purchase through a loan will typically need to demonstrate to their lender that the business generates sufficient profit after all occupancy costs to service the debt and provide a return. A high rent relative to revenue is a genuine constraint on what the business can support in terms of purchase price and finance.
Repairs and dilapidations
Commercial leases typically place significant repair and maintenance obligations on the tenant. These can range from an obligation to keep the interior of the premises in good repair, to a full repairing and insuring lease that makes the tenant responsible for the entire fabric of the building, including the roof, structure and external walls.
At the end of the lease term, or sometimes also at assignment, the tenant may face a dilapidations claim from the landlord — a demand to put the premises back into the state required by the lease, or to pay the landlord the cost of doing so. Where the premises have deteriorated, or where alterations have been made without consent, a dilapidations claim can be substantial.
GOV.UK guidance on renting business property is clear that commercial tenants have real maintenance and repair responsibilities that they must take seriously. Sellers should review their repair obligations under the lease, consider whether there are any pending or likely dilapidations issues, and disclose any landlord repair notices received.
Buyers will want to see maintenance records, any schedule of condition prepared at the start of the lease, and service records for equipment and building systems. A buyer who undertakes their own survey of the premises and discovers significant disrepair that was not disclosed will either reduce their offer or withdraw. Addressing known repair issues before listing, or pricing them into the sale, is the cleaner approach.
Use restrictions and licences
Commercial leases specify the permitted use of the premises. If the permitted use is described narrowly — "for use as a newsagent and general store" rather than "for use for any purpose within Class E" — the buyer may not be able to operate the business in the way they intend without obtaining landlord consent to a change of use.
In addition to the lease use restriction, planning permission may affect what activities can be carried out from the premises. A change in the nature of the business — for example, introducing a food takeaway element to a café, or changing opening hours — may require both landlord consent and planning permission.
Sector-specific licences — a premises licence for the sale of alcohol, a food business registration, a health and beauty licence, a childcare registration, a gym registration — should be checked to understand whether they transfer to the new operator or need a fresh application. In many cases, personal licences and business registrations cannot be transferred: the buyer must apply in their own name, which takes time and is not guaranteed. Where the business depends on such a licence to operate, the buyer's ability to obtain it is a critical condition of the sale.
Any restrictions on alterations, signage, outdoor seating, delivery arrangements, noise or opening hours should be identified and disclosed. A buyer who intends to make changes to the business may find that those changes are restricted by the lease or by planning conditions, and discovering this after making an offer creates frustration and potential renegotiation.
What to prepare before listing
Before the business is listed for sale, the seller should gather and review the full lease document — including all schedules and annexures, any deed of variation, any side letters, and any relevant correspondence with the landlord. A commercial property solicitor should advise on the assignment clause, the remaining term, the renewal position, the dilapidations risk, and the process for obtaining landlord consent.
A summary of the key lease terms should be prepared for sharing with serious buyers at the appropriate stage — not the full document initially, but a clear overview covering the term, rent, service charge, break clauses, rent reviews, permitted use, and assignment conditions. Buyers will ultimately want to review the full document, but a clear summary at the earlier stage allows them to assess whether the lease is a material concern before investing time in detailed due diligence.
The business rates details — the rateable value, applicable multiplier and any reliefs in place — should also be documented. If small business rates relief applies, the seller should confirm whether it will continue under the new owner.
Arrears, pending rent reviews, service charge disputes, or landlord notices must all be disclosed. These are the kind of items that, if discovered unexpectedly by a buyer during due diligence, erode confidence significantly. Disclosing them proactively, with a clear explanation, demonstrates transparency and allows the price and terms to reflect the known position rather than being renegotiated after the fact.
Lease sale checklist
Full lease document located, including all schedules, variations and side letters.
Assignment clause reviewed — assignment permitted, conditions identified.
Landlord consent process understood — what the landlord will require from the buyer.
Whether an AGA from the seller will be required, and what obligations that creates.
Lease term checked — start date, end date, years remaining.
Security of tenure position checked — inside or outside the 1954 Act.
Renewal rights understood.
Break clauses identified — dates, notice requirements, conditions.
Rent review dates identified and current market rent awareness established.
Rent, service charge, business rates and all occupation costs summarised.
Rent arrears checked and disclosed.
Repair obligations under the lease reviewed.
Dilapidations risk assessed — condition of premises and any pending claims.
Maintenance records and service records organised.
Permitted use clause checked — consistent with current and intended use.
Any sector-specific licences reviewed — transferability confirmed or flagged.
Planning position checked.
Confidentiality plan for approaching the landlord agreed with solicitor.
Commercial property solicitor identified and instructed.
FAQs
Can I sell my business if the lease cannot be assigned?
Possibly, but it requires a different approach. If the lease cannot be assigned, the buyer may need to negotiate a new direct lease with the landlord — a process that takes time and is not guaranteed to succeed on terms the buyer finds acceptable. Alternatively, the business may be sellable without the premises, if the buyer can operate from a different location. In some cases, the inability to assign is a deal-breaker that means the business, as a going concern in those premises, cannot be sold at all. Taking legal advice on the specific position before listing is essential.
Should I tell my landlord before I list?
Not necessarily, and not without thinking through the confidentiality implications carefully. If the landlord discovers the business is for sale before a buyer is secured, they may use the position to push for a higher rent on renewal, impose conditions on the assignment that are more onerous than expected, or simply share the information in ways that damage the business. The timing of approaching the landlord should be discussed with a commercial property solicitor and managed as part of the overall confidentiality plan.
Will the buyer need a personal guarantee?
Possibly. Whether the landlord requires a personal guarantee from the incoming tenant depends on the lease terms, the buyer's financial profile, and the landlord's assessment of the risk. Where the buyer is a limited company with limited financial history, or an individual without substantial assets, the landlord may require a personal guarantee or a rent deposit as a condition of consent. Buyers should be advised of this possibility early so they can consider it as part of their funding planning.
Does a short lease reduce the value of the business?
In most cases, yes. A buyer who has less than three years remaining on a lease faces meaningful uncertainty about whether they will be able to continue operating from the location. Even where the business has statutory renewal rights under the 1954 Act, the uncertainty of a renewal negotiation — including the possibility of a significant rent increase — makes a short lease a risk that most buyers will price into their offer. Sellers with a short lease should either seek a lease extension before listing, negotiate heads of terms for a new lease with the landlord, or be realistic that the short term will affect achievable price.
Who pays the landlord's legal fees for the assignment?
This varies and is a matter for negotiation between the parties. Many commercial leases require the tenant to pay the landlord's reasonable legal costs in connection with a licence to assign. In practice, these costs are often shared between buyer and seller, or borne by the buyer as the incoming tenant. The position should be confirmed during the negotiation stage and addressed in the heads of terms.
Key takeaways
The lease is one of the most significant documents in any business sale involving premises, and it is consistently one of the most common sources of delay. Assignment is not automatic — it typically requires landlord consent, which takes time and may come with conditions. The remaining term, rent, service charge, repair obligations, and use restrictions all affect value and buyer confidence. Sellers should review the lease with a commercial property solicitor before listing, prepare a clear summary for buyers, disclose the full position honestly during due diligence, and plan the timing of approaching the landlord carefully. Getting the lease position understood and managed early is one of the most effective things a seller can do to protect the sale timeline and the final price.
Related resources
Important disclaimer
Buy a Business Ltd is a marketplace, not a broker, corporate finance adviser, M&A adviser, law firm, accountant, tax adviser, lender, valuation firm, employment adviser, property adviser or investment adviser. Information, guides, checklists and examples on this site are for general guidance only and do not constitute legal, tax, financial, investment, lending, valuation, employment, property, data protection, brokerage, corporate finance, M&A or regulated advice.
Buying, selling, financing, structuring or transferring a business can have legal, tax, employment, property, data protection and commercial consequences. You should seek independent professional advice before making an offer, listing a business, signing documents, forming a company, taking over a lease, sharing sensitive data or completing a business purchase.
Sources and useful references
GOV.UK: Get information about a company
GOV.UK: Selling your business — your responsibilities
GOV.UK: Running a limited company — directors' responsibilities
GOV.UK: Corporation Tax trading and non-trading
GOV.UK: Renting a business property — tenant responsibilities
GOV.UK: Business transfers, takeovers and TUPE
GOV.UK: Business Asset Disposal Relief
GOV.UK/HMRC: VAT registration threshold changes
ICO: Due diligence when sharing data following mergers and acquisitions