Buying a business
Gaining a Better Understanding of Leases
How a lease passes to a buyer by assignment, sublease or new lease, what each leaves the seller liable for, and what to disclose early.
By Michael D. Rubin, CEO & Founder · Updated September 2026 · 705 words
When a business is sold, its lease usually passes to the buyer in one of three ways: the existing lease is assigned to the buyer, the seller sublets the space to the buyer, or the buyer signs a new lease with the landlord. Which one applies depends on the lease wording, the landlord and how the sale is structured, and each leaves the seller with a different level of continuing responsibility. Leases get less attention than price and financing, yet they stall deals regularly.
This is general information. Your transaction attorney should read the actual lease and advise on it.
Asset sale or stock sale changes the question
In an asset sale, the buyer purchases the company's assets, and the lease is one of the contracts that has to be transferred, which usually requires the landlord's consent. In a stock or membership-interest sale, the buyer purchases the entity itself, so the tenant does not change. That sounds simpler, but many leases treat a change of ownership like a transfer and require consent anyway.
Read the assignment and change-of-control clauses before you agree on a structure. Our answer on selling assets or ownership interests covers the structure decision itself.
The three ways a lease passes to a buyer
| Route | How it works | What the seller should watch |
|---|---|---|
| Assignment | The seller transfers its rights and obligations under the existing lease to the buyer, with the landlord's consent | Many landlords keep the original tenant, and any personal guarantor, liable if the buyer defaults, unless released in writing |
| Sublease | The seller remains the tenant and rents the space on to the buyer, becoming the buyer's landlord | The seller stays fully bound to the landlord for the rest of the term, and the lease must permit subletting |
| New lease | The buyer negotiates its own lease directly with the landlord and the old lease ends | Usually the cleanest exit for the seller, though the landlord may use the moment to change rent or terms |
Why assignment is common, and what it leaves behind
Assignment is the usual route in small and midsize company sales because it keeps the terms the business already has. The catch for the seller is continuing liability. Unless the landlord signs a release, the original tenant, and often the owner who personally guaranteed the lease years ago, can still be pursued if the buyer stops paying.
Ask for a release as part of the landlord's consent. If the landlord refuses, talk to your attorney about protections, such as a guarantee from the buyer in your favor or security held until the original term ends.
A sublease leaves the seller even more exposed, because the seller stays the tenant and must collect rent from the buyer while paying the landlord. It can make sense for a short remaining term or a space the seller will soon leave anyway, but it rarely suits an owner who wants a clean break.
Disclose lease issues at the start
A buyer, and the buyer's lender, want certainty about where the business will operate. Problems that surface late, such as a lease expiring soon after closing, a landlord unwilling to consent, a scheduled rent increase or a dispute over repairs, can delay or end a deal. Raise them early and, where possible, fix them before going to market.
- Find the signed lease and every amendment, and confirm the remaining term and renewal options
- Read the clauses on assignment, subletting, change of ownership and personal guarantees
- Check that rent, maintenance and property tax obligations are current
- Plan a discreet conversation with the landlord when your advisor judges the timing right
- Consider extending a short term before the sale rather than during it
How MDR & Associates handles leases in a sale
MDR & Associates asks owners to raise lease questions early, so that the landlord's position is known before buyers start relying on it. Due diligence and legal documents are steps eight and nine of the ten-step process, and the owner's own transaction attorney handles the legal side while the firm keeps the landlord conversation in step with the buyer's timeline and financing. If the owner also owns the building, that becomes a separate negotiation. To talk through your situation confidentially, contact the firm.
Where this fitsBuy a business in Texas →
Questions owners ask next
Can a landlord refuse to consent to a lease assignment?
Many leases say consent cannot be unreasonably withheld, but some give the landlord broad discretion. The landlord will usually want the buyer's financial information and may ask for a personal guarantee. Have your attorney read the clause early so you know how much leverage each side has.
What if my lease expires shortly after the sale?
Buyers and lenders both worry about a short remaining term. Where possible, negotiate an extension or renewal option before going to market, or make a new lease between buyer and landlord a condition of closing. Leaving it unresolved invites a lower price or a delayed closing.