Understanding Your Rights: Selling a Small Business with a Rolling Lease
Running a small business often involves navigating complex legal and contractual relationships. When it comes time to sell your business, especially under a rolling lease agreement, it’s crucial to understand your rights and the boundaries of your lease, as well as how to handle negotiations with your landlord.
Background of the Business and Lease Agreement
In this scenario, the business owner operates a small retail shop occupying premises within a larger office building. The lease agreement is held in the owner’s name, and the lease operates on a rolling basis—meaning it renews periodically without a fixed end date. Originally purchased from the previous owner, the business has been operated for several years, and the owner now wishes to sell due to personal and financial reasons.
Initial Communication with the Landlord
Proactively, the owner informed the landlord of the intent to eventually exit the business. The landlord responded via email, expressing initial support and noting that while final approval for any new tenant rests with him, he did not oppose the owner seeking a successor. Maintaining this correspondence provides a record of the landlord’s initial position and intentions.
The Proposal and the Sale Process
A prospective buyer, identified through a mutual contact, approached the owner with a formal offer. The proposal involves acquiring equipment and the goodwill associated with the business, with the buyer willing to pay a significant sum and proposing to renew the lease under the landlord’s terms. It is important to highlight:
- The business is solely owned by the seller; assets and branding are their property.
- The buyer intends to negotiate a new lease directly with the landlord.
- The seller remains current on all rent obligations.
- There is no contractual clause in the existing lease prohibiting the sale or transfer of business assets.
Landlord’s Response and Legal Considerations
Contrary to expectations, the landlord reacted with hostility, claiming that the owner has no right to profit from the sale. Specifically, the landlord asserts:
- All goodwill automatically belongs to him.
- He demands half of the sale proceeds.
- He prefers the premises to remain vacant rather than allow a sale where the owner benefits financially.
- He has threatened to refuse a new lease to any tenant proposed by the owner unless he receives a portion of the sale.
These claims raise questions about the legal basis for the landlord’s position:
- Goodwill Ownership: Typically, goodwill is considered part of the business assets owned by the seller unless explicitly assigned or restricted by lease provisions
