When selling a business, do you assign the lease or create a new one?

It’s a frequently confronted situation and one that requires some experience to evaluate.

Here is the difference: If you assign a lease, you, the original business owner and the new lessee both remain liable for the contract until its end even with the assigned new business owner in control of the space. If you do not assign and require a new lease for the new buyer, the new owner/lessee will be solely responsible for the liability of the contract; freeing the seller completely.

Additionally, if you assign the lease contract the terms and conditions remain the same. If you create a new lease for the buyer, the terms and conditions can be re-negotiated based on changing circumstances. It is possible to amend the original lease but less likely than with a new lease.

In the current tight market with reduced revenues, reduced rents are far more likely with a new contract. Landlords do not want an empty facility in this low demand market but resist negotiating with an in place lease. The new buyer has enormous leverage to change the terms and lower the lease cost. It should be done with a new lease not an assignment.