The Importance of Understanding Leases

By Michael D. Rubin, CEO & Founder · Updated September 2026 · 733 words

When you buy a business that rents its space, the lease reaches you in one of three ways: the seller assigns it to you, the seller sublets the space to you, or you sign a new lease directly with the landlord. Each route gives you a different level of security. Before closing, a buyer must know which route applies and that the landlord has agreed, because a business that loses its location can lose much of its value overnight.

Leases are easy to push aside while price and financing take center stage. Yet few documents affect the stability of a business as much, and a buyer who understands the lease early avoids the most avoidable kind of closing-week crisis.

Assignment of the existing lease

Assignment is the most common route when a business is sold as an asset purchase. The seller transfers its rights under the lease to the buyer, who steps into the tenant's position for the rest of the term. The landlord remains the landlord, and the seller does not become one.

Most commercial leases require the landlord's consent to assign, and landlords often ask for the buyer's financial statements, business experience and sometimes a personal guarantee. Unless the landlord releases the seller, the seller may remain liable if the buyer later defaults, which is worth negotiating on both sides of the deal.

Sublease

In a sublease, the seller keeps its lease with the landlord and rents the space to the buyer under a second lease. The seller becomes the buyer's landlord. That creates a dependency the buyer should think hard about: if the seller's own lease ends early or the seller defaults on it, the buyer's right to stay can end with it.

Subleases usually need the landlord's permission too, and that permission should never be treated as automatic. Buyers generally prefer an assignment or a new lease, and use a sublease only when the other routes are unavailable and the remaining term is secure. If a sublease is the only option, ask to see the seller's own lease and confirm that its term runs beyond yours.

A new lease

If the current lease is about to expire, or the landlord prefers fresh terms, the buyer negotiates a new lease directly. This produces the cleanest position once signed, but the least certainty along the way: the landlord can raise the rent, change the terms or decline altogether. A buyer should have a signed lease, or at least written agreement on the main terms, before closing. Buying a business only to learn that it must move is an expensive surprise, and the cost of relocating falls entirely on the new owner. Starting the landlord conversation early also shows you how the landlord behaves, which matters for all the years you will be a tenant.

When you buy shares, not assets

If you buy the company's shares or membership interests rather than its assets, the lease stays with the same tenant, which is the company itself. No assignment is needed. However, many leases treat a change of ownership as if it were an assignment and still require the landlord's consent, so your attorney should read the clause rather than assume. The choice between the two structures affects much more than the lease; see selling assets or ownership interests for the other consequences.

What to confirm before closing

Lenders read the lease as well, because the loan depends on the business staying where it is; raise it early with your financing source. Sellers benefit from the same clarity. A long, assignable lease on reasonable terms is a genuine selling point, and a landlord who is ready to consent speeds up closing for everyone.

• Which of the three routes applies, confirmed in writing.
• Landlord consent, made a condition of closing.
• How many years remain, and whether renewal options belong to the tenant.
• The rent, scheduled increases and shared costs such as maintenance and taxes.
• Any personal guarantee the landlord expects from you.
• Whether the lease permits the business's current use and any changes you plan.

How MDR & Associates handles leases

When MDR & Associates represents a seller, leases are among the documents organized before the company goes to market, so buyers can see the terms early and landlord consent can be requested as soon as a buyer is chosen. Buyers can learn how to access the companies we represent on our buyer page.

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Questions owners ask next

Can a landlord refuse to let me take over the lease?

Often, depending on the lease wording. Some commercial leases say consent cannot be unreasonably withheld; others give the landlord broad discretion. Ask for approval early, provide the financial information requested, and make consent a condition of closing so you are never committed to a business without a place to run it.

Will the seller stay liable on the lease after I take over?

Unless the landlord signs a release, the original tenant often remains responsible if the new tenant defaults. Sellers should negotiate for a release, and buyers should expect that the landlord may ask for a personal guarantee in exchange. Both sides' attorneys should review the assignment documents before signing.