Occasionally business owners outsmart themselves when it comes to leases on their premises. We were recently asked to help in the selling of a retail business here on the Sunshine Coast that has been in the same location for many years. The lease had run its course and the business owner had chosen not to renew the lease. The landlord was agreeable to this, with the lease reverting to a ‘monthly’ tenancy. With a monthly tenancy, there is no security of tenure. Either party to the lease, either the landlord or the tenant can terminate with just 1 months notice. It gives the tenant the flexibility to be able to vacate within 30 days, but it makes the business very vulnerable.
The business owner wanted to retire once the business had sold, but knowing that retail businesses were hard to sell, he wasn’t prepared to commit to another 3 years in the shop. The business was a well branded franchise, with outlets all over Australia. With a sign in the window, ‘Business for Sale’, a buyer wandered into the shop to chat with the owner. After many meetings, the prospective buyer was told that the lease was only on a monthly basis, he quietly did some delving to establish the identity of the landlord. He also contacted the franchisor directly, to ask if any new franchises were available on the Sunshine Coast. The new tenant wasn’t prepared to pay anything for the business, knowing the owner had no secure lease and consequently, had no business to sell, just a shop full of stock. The buyer then negotiated directly with the landlord, who agreed to a long lease of 5 years. And why wouldn’t he! His existing tenant wasn’t prepared to sign a new lease, so it made good sense. The landlord gave 30 days notice to the existing tenant, who was now in a really bad situation. He has a shop full of stock, but the new tenant only wanted certain items, not the whole shop full. The new tenant dealt directly with the franchisor, who was delighted to have a new franchisee happy to sign a long lease. The existing business owner now has no business to sell and a shop full of stock that he has to sell at a bargain price, just to get rid of it all.
The moral of the story is that without a solid lease in place, any business is in a very shaky position. Landlords have no emotions: they don’t care about a longstanding tenant who may have been paying rent loyally for many years. If there’s no signed lease in place, it’s “Adios Amigo!”