Current tenants selling their business:
What it means for a landlord
If you are a commercial building owner, you will at some point come across a situation where your current tenant wants to sell their business. Tenants often forget to talk to their landlord about them consenting to the new business owner.
When a business is sold, the current tenant is obliged to seek the landlord’s consent to assign the lease to the incoming business owner. The landlord usually has 10 days to approve the new tenant.
As a landlord, do you know what to look for? How can you be sure that the new tenant will pay their rent on time, and will look after and care for your asset as well as the previous tenant has done? The short answer is – you can’t really. However, there are some steps you can take to gather as much information as you can on the new tenant. You should:
- Obtain a credit check on the incoming tenant and any guarantors
- Ask to see copies of their business plan and financial statements (if available), and
- Check to see if they own any other property.
You can refuse consent to the assignment on reasonable grounds. However, landlords often feel they have no choice but to agree; you have every right to take time to do some due diligence on a new tenant. If you’re unsure what you can ask a possible incoming tenant, do talk with us.
Ticking the boxes on Agreements for Sale and Purchase:
“Just tick the box here, here and here if you need finance, a LIM report and a builder’s report”.
You’ll likely have heard this if you have ever bought a property. You’ll have been advised that you require some conditions to protect you while you make an application for finance, arrange for your builder to inspect the property and to obtain a LIM from the local authority.
The standard Agreement for Sale and Purchase form provides perfectly good and well-established mechanisms for those conditions to operate. But how much did you really understand when you just ‘ticked the box’? Were you expecting that you could only raise issues in a builder’s report that were substantial enough to be considered ‘objective problems’? Did you know that you would have to provide a copy of the report if you raised issues you wanted raised? Did you know that you couldn’t simply walk away from the contract if you found a few things in the building report that you just didn’t like?
What about finance? Were you aware that if you didn’t make a reasonable effort to obtain mortgage finance that you might be in breach of the terms of the Agreement? Did you realise that if you did make an effort and only managed to obtain finance on terms which you didn’t quite like, you could be stuck with the terms of that finance offer?
The standard wording in the Agreement for Sale and Purchase imposes a much stricter obligation than most purchasers realise. If you have a specific need to manage conditions on your own terms, then you will need our help to draft those conditions so you don’t unwittingly get caught out.
‘Joint tenants’ or ‘tenants in common’ when buying?
This is a question often overlooked when buying your home. It is, however, a common situation when two people are buying a property together. Let’s take an example to show how these both work.
If you’re buying a house together, many will assume that you’re in a relationship and, therefore, would want the property purchased jointly, using the ‘what’s yours is mine’ approach. If this is the case, a ‘joint tenancy’ is appropriate. The effect of owning property in this way is simply that if one of you dies, the property passes to the other by what is known as the ‘right of survivorship’.
However, if you both want to protect your own investment in the property for whatever reason (you may be friends and not in a relationship, for example) and don’t want it to instantly pass to the other person on your death, you will need to obtain some advice on owning the property as ‘tenants in common’. This means that your share would be recorded as a proportional ownership on the title and your share in the property would pass to the beneficiaries of your estate as outlined in your Will.
In each case, you should discuss with us which form of ownership is most appropriate for your situation.
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Copyright, NZ LAW Limited, 2017. Editor - Adrienne Olsen, e. firstname.lastname@example.org p. 029 286 3650