.svg)
.webp)
When you buy an existing business, you are buying a lot of things at once: goodwill, equipment, stock, customers, staff, and in most cases, the premises. The lease that comes with those premises is often the part of the transaction that receives the least attention early on - and one of the parts most likely to cause friction later.
The reason is structural. A business sale is primarily a two-party transaction between buyer and seller. The lease introduces a third party - the landlord - whose consent is usually required and who has their own interests in how the process unfolds. Timing, conditions, and costs can all shift depending on whether you are dealing with a lease assignment or negotiating a new lease entirely. Recent changes to the Retail Leases Act 1994 (NSW) have also clarified the cost position around new leases in ways that affect how buyers should approach the decision.
Before you sign a business sale contract in NSW, understanding what is in the lease, what your options are, and how to protect yourself through appropriate contract conditions is worth more than most buyers realise. This post walks through what to look for.
What is lease assignment? It is the process by which a seller transfers their rights and obligations under an existing lease to a buyer, with the landlord's consent, so the lease continues on its current terms.
When does it matter? Every time a business sale includes premises occupied under a lease — which is most of them.
Key insight: The lease terms, remaining duration, and the landlord's position can all affect whether a business purchase proceeds, on what timeline, and at what cost.
Why professional guidance helps: The business sale contract and the lease process need to work together. Missing the connection between the two is where buyers most often run into difficulty.
Before you progress too far into negotiating a purchase price, take a close look at the lease. How much time is remaining on the term, and are there options to renew? What does the permitted use say — and does it actually cover what you intend to do? Are there restrictions on assignment? What make-good obligations exist at the end of the term?
These factors affect the value of what you are buying, your ability to take over the premises, and your ongoing obligations as an incoming tenant. They are worth understanding before you exchange contracts, not after.
Most business buyers focus on the headline numbers: the asking price, the revenue, the equipment, the current rent. The details of the lease tend to get reviewed later in the process - often during a due diligence period after contracts have already been exchanged. By that point, the room to renegotiate or walk away without cost may have narrowed considerably.
There are a few interconnected reasons why the lease deserves early attention. First, it determines whether you can actually occupy and use the premises for the purpose you are buying the business for. A permitted use clause that does not match your intended operations is a genuine problem, not a technicality. Second, the remaining term and renewal options are directly connected to the value of the goodwill you are paying for. A business with twelve months left on a lease and no options carries a very different risk profile from one with five years remaining and two five-year options. Third, the process of obtaining landlord consent or negotiating a new lease takes time - and that time can affect your settlement date in ways that create real commercial pressure.
My experience working across commercial leasing and business transactions means I see these issues arise regularly, and the earlier they are identified, the more options buyers have to address them.
When a business changes hands, there are two ways an incoming buyer can take over the premises.
Assignment of the existing lease means the buyer steps into the seller's shoes under the current lease terms. The lease continues unchanged - same rent, same conditions, same expiry date. Landlord consent is typically required under the terms of the lease itself, and landlords can attach conditions to that consent, most commonly requiring a personal guarantee from the buyer. Assignment is generally quicker and more straightforward when the existing lease has reasonable terms and sufficient tenure remaining.
A new lease involves the landlord and buyer negotiating fresh terms entirely. This gives both the landlord and the business buyer the opportunity to update rent to market rates, change conditions, and effectively reset the relationship.
Several situations make this more layered. Where the lease has only a short period remaining, assignment may have limited practical value - you are essentially acquiring a right to occupy for a matter of months before facing a new negotiation anyway. Franchise businesses introduce a different complexity: the franchisor often holds the head lease and grants the franchisee a sublease, which means the "lease" appearing in the sale documents may not reflect the full arrangement between the landlord and the person occupying the premises. Where a business operates across multiple locations, each lease needs separate consideration and separate landlord engagement.
The due diligence you do on a lease before signing the business sale contract is what determines whether you are in a strong position going into the process or a reactive one.
Remaining term and options. The tenure available under the lease is one of the most material factors in the business's value. Understanding what options exist, whether they have been properly preserved by the seller, and what the rent review mechanism looks like on exercise all form part of a proper lease review. Given that the value of the business is often linked to the location, this is an opportunity to give consideration to whether the price reflects the remaining term.
Permitted use. Leases specify the purposes for which premises can be used. If you are buying a business that operates differently from what the lease permits - even in a minor respect - the seller may be in breach of the the and you may need landlord consent to change the permitted use, which introduces an additional negotiation, additional cost, and additional delay.
Make-good obligations. These are provisions requiring the tenant to restore the premises to a specified condition at the end of the term. For buyers, the question is whether you are taking on obligations that relate to the seller's fit-out and use of the premises, or whether the scope of your obligations is clearly defined. Make-good costs can be significant, and they are rarely quantified in a business sale contract unless someone specifically raises them.
Existing defaults or disputes. Issues that have not surfaced during the business sale negotiation have a way of emerging after settlement. Reviewing the lease and any associated correspondence for unresolved matters between the seller and landlord is part of understanding what you are actually acquiring.
A note on timing: landlord consent to assignment can take weeks. If the business sale contract sets a fixed settlement date and the lease process has not been factored into the timeline, you can find yourself in a position where settlement is imminent but the lease is not resolved. Building appropriate conditions into the contract from the outset - including a condition that settlement is subject to landlord consent being obtained - is how that exposure is managed.
One thing I find buyers consistently underestimate is how much the landlord's position shapes the transaction, not just the lease process.
In a straightforward assignment, the landlord consents, conditions are agreed (typically around a guarantee), and the process is largely administrative. In other situations, it can become more difficulty - security is often an issue especially when the incoming tenant does not have the business or financial track record the landlord is looking for.
The landlord's right to withhold consent is not unlimited. There are legislative constraints on unreasonable refusal in NSW. But what constitutes unreasonable refusal is fact-specific, and navigating that position requires understanding both the legal framework and the practical dynamics of what the landlord is actually trying to achieve.
For buyers, the question is not just whether the landlord will consent. It is also: on what conditions? A requirement for a substantial personal guarantee, a bank guarantee, or an obligation to carry out outstanding works to the premises all affect the economics of the purchase. These are things worth understanding before the business sale contract is exchanged, not after.
Where the business being sold is a retail business covered by the Retail Leases Act, there are specific disclosure obligations and procedural requirements that apply. The disclosure statement the seller is required to provide should be reviewed properly, not treated as a formality.
A structural consideration that does not surface naturally in business sale negotiations: where a buyer intends to acquire the business through a company but the lease requires a personal guarantee, how that guarantee interacts with the buyer's intended holding structure is a question that sits at the intersection of leasing and business law - and it needs to be considered before the deal is structured, not after it is documented.
The business sale contract and the lease process need to be running in parallel, not sequentially. A well-drafted condition in the business sale contract will specify not just that landlord consent is required, but what form that consent must take, who bears the costs of preparation and consent, what happens if consent is refused or conditions are attached that the buyer considers unacceptable, and what timeline applies. These provisions are what protect a buyer if the landlord does not cooperate or attaches conditions that were not anticipated.
Understanding what landlords are actually thinking about when they receive a consent request also helps move the process along. Landlords want to know who is coming into their premises, what the proposed tenant's financial position is, and whether the intended use will work for the building and surrounding tenancies. Framing a consent request in a way that addresses those concerns - rather than simply requesting consent as a formality - tends to produce a faster and more cooperative response.
A buyer negotiates to acquire a food and beverage business in a Sydney shopping centre. The agreed purchase price reflects the goodwill the business has built over eight years in the same location. The existing lease has two years remaining and one five-year option.
The buyer assumes exercising the option is straightforward. What they have not checked is that the lease gives the landlord the right to review rent to market when the option is exercised - and the current rent is materially below market. The rent that will apply from year three onwards, under the option, could be substantially higher. That has not been reflected in the purchase price.
There is also a make-good clause requiring the tenant to remove all fixtures and fittings installed during the term. The current fit-out cost the seller over $200,000. The buyer is acquiring it as part of the purchase. The make-good obligation attached to it is not part of what the buyer expected to take on.
Neither issue would have prevented the purchase from proceeding. But identifying them before exchange changes how the purchase price is structured, what conditions are included in the contract, and how the lease assignment is documented. That is the value of doing the lease due diligence properly, and early.
When I work with clients on buying a business in NSW where premises are involved, I look at both the lease and the business transaction together. That means reviewing the lease as part of the due diligence process - not as an afterthought - and understanding what the lease terms mean for the business's ongoing viability and economics, not just whether the assignment will technically proceed.
I help buyers understand what the lease actually requires of them as an incoming tenant, identify the provisions that matter for their specific situation, and make sure the business sale contract has conditions that protect them if the landlord does not cooperate or the process does not proceed as expected.
If you are considering buying a business in NSW and there is a lease involved, getting in touch early gives you options. Leaving the lease review until after exchange usually means you do not have them.
Professional guidance is particularly valuable before you sign the business sale contract — not after. Once the contract is exchanged, your ability to withdraw without cost depends on the conditions that were included. Before exchange, there is time to review the lease properly, assess the landlord's likely position, and draft conditions that protect you through the consent process.
If the business involves retail premises covered by the Retail Leases Act, a sublease arrangement, an institutional landlord with standard consent requirements, or a lease that is close to expiry, the specific requirements of those situations are worth understanding before you commit.
You can read it - and I would encourage you to. But understanding what a lease says and understanding what it means for your specific purchase are different things. Whether an assignment clause gives the landlord adequate grounds to refuse consent, whether make-good provisions attach to the seller's fit-out or start afresh with you, or whether the permitted use covers your intended operations all require reading the lease in the context of what you are acquiring and how you plan to use the premises.
Sellers have an interest in the transaction proceeding. The landlord may well be cooperative, but what the landlord considers a straightforward consent and what a buyer considers acceptable conditions can differ significantly. I would not rely on the seller's characterisation as a reason to omit proper consent conditions from the contract.
This requires separate attention. The arrangement between the franchisor and franchisee, the sublease (if there is one), and the franchisor's own consent requirements all need to be understood alongside the head lease. Franchise businesses with premises can involve consent processes that operate on the franchisor's timeline and requirements, not just the landlord's - and those processes are not always quick.
It depends on the grounds for refusal and the terms of the lease. NSW legislation imposes constraints on a landlord's ability to unreasonably withhold consent to assignment, but what is unreasonable is fact-specific and context-dependent. Your practical position in that situation depends significantly on how the business sale contract was drafted - which is why the conditions in the contract matter before you are in that position, not after.
Yes, potentially on both sides. The landlord may require their legal costs for reviewing and documenting consent to be covered. Where a new lease is negotiated rather than an assignment, the landlord can recover reasonable lease preparation costs under the Retail Leases Act 1994 (NSW). Your own legal costs for reviewing the lease and advising on the assignment process should be factored in from the beginning of the transaction, not treated as a surprise at settlement.
