How a commercial lease can make or break your business sale

19 September, 2025 | Jude Dragh

When buying or selling a business, one of the most critical components to address is the commercial lease. Whether you’re exiting a business or stepping into a new one, the transfer of the lease can significantly impact the value of the deal and determine whether it goes ahead at all.

Why early legal review of the lease matters

Not long ago, we advised a couple purchasing their first small business. Keen to secure the opportunity, they paid the deposit and signed the agreement before seeking legal advice. Once we were engaged, several issues with the lease came to light, issues they had not been made fully aware of at the time of signing.

Following our detailed review of the lease documents, our clients determined that the lease was not acceptable for them. Among their concerns were the lease’s assignment history and the requirement to provide both a personal guarantee and a significant bond. In addition, the current term was short and included no rights of renewal. There were also no allocated or included carparks, despite the tenants being required to contribute to parking-related costs.

Their experience highlights how important it is to have the lease reviewed by a lawyer, as many issues may not be immediately obvious but can lead to long-term financial and operational consequences.

Assigning the lease: It’s not always straightforward

Buyers often expect to take over the existing lease, but this isn’t automatic. Most leases require the landlord’s written consent for an assignment. In our clients’ case, this consent was not straightforward and came with additional conditions that had not been disclosed upfront.

Landlords typically assess the proposed tenant’s financial standing and may impose conditions such as personal guarantees or requiring additional terms be included. The process can delay settlement or even derail the transaction if not managed properly, which is why early engagement with the landlord is essential.

Costly terms to watch for

Buyers should carefully review rent review mechanisms. Some are fixed, some are CPI -based, while others are tied to a market rent valuation. Market-based reviews can result in unpredictable increases if local property values rise sharply.

It is also essential to understand the full cost of tenancy. Outgoings such as insurance, council rates, water charges, and shared maintenance costs can add considerably to the base rent. These costs are not always clearly detailed during the sale process, so requesting a recent summary of outgoings is an important step.

Clauses relating to maintenance, alterations, or end-of-lease obligations can also carry serious implications. A common example is a make good requirement, which obligates the tenant to return the premises to its original condition at the end of the lease. This can involve repainting, removing fit-out, and restoring the layout, often at significant cost.

Understanding these provisions in full, and what they mean in practical terms, is critical before entering into any business purchase.

Know what you’re taking on

Understanding exactly what you are stepping into is essential when acquiring a business with leased premises. Buyers should request a full copy of the lease history, and any notices or breaches. It’s important to confirm there are no arrears in rent or outgoings and no unresolved compliance matters – which are typically the responsibility of the outgoing tenant but may create issues for the buyer.

In addition, practical questions must be asked early. Are there restrictions on fit-out or signage that could limit how you run or brand the business? Will the landlord permit changes to the layout or use of the premises if your business evolves? Is there a first right of refusal should the property be sold, giving you the opportunity to buy the premises? These details can impact not just the value of the lease, but also your flexibility and control as a tenant.

Understanding these factors in full helps you avoid unpleasant surprises post-settlement and ensures the premises truly support your business goals.

The bottom line

Getting a lease reviewed before committing to a purchase can save significant cost, stress, and uncertainty.

In our clients’ case, although they only received advice after signing, we were able to assist them in cancelling the agreement and avoiding what could have been a costly and risky commitment.

If you are thinking of buying or selling a business with a lease attached, do not leave it to chance. Our commercial team can help you identify risks, negotiate better terms, and ensure you are entering the deal with your eyes wide open. In the first instance speak to Jude Dragh, on 09 837 6886, email her at  jude.dragh@smithpartners.co.nz or fill out the form below.