Transfer of Lease
The transfer of lease from the seller to the buyer is a necessary step in most pharmacy transactions and it can lead to significant delay (and stress for the parties involved), if not managed correctly.
The respective state regulatory authorities, as well as the Department of Health, require that the buyer evidence a right of occupancy at the premises from which the pharmacy is to operate, prior to providing the necessary approvals to your buyer to complete the purchase.
This right of occupancy can be in the form of a new Lease, licence or more commonly a transfer of the existing lease to the buyer. As the buyer’s subsequent approvals rely, among other things, on this right of occupancy, it is critical that this process is completed expeditiously and efficiently.
Corporate landlords, such as those of large shopping centres, require internal approvals to complete a lease transfer. These processes, which include arranging for relevant parties to sign documents, can delay settlements by months. Even smaller landlords can cause long delays, especially with regards to contacting and involving managing agents and solicitors.
Some sellers do not want to engage their landlord until the sale contract has been fully executed, or until the sale has advanced closer to settlement. However, there is no disadvantage for the seller in engaging their landlord at an early stage in the sale, to state that the business has been sold and a transfer will be required.
This approach is recommended as the more notice that a landlord receives, the earlier the process can be initiated, and the more time the parties have to address any issues that may arise.
Renewal of Lease
For sellers that have not exercised their option to renew and are therefore in overholding, further delays will arise. Prior to selling your business, it is important to ensure that your lease is current. If your lease has not been renewed as was required, then this must be attended to as soon as possible. Furthermore, if you have a renewal coming up, remember the dates and open the dialogue with your landlord well in advance, to make sure that you have exercised your option before you commence the sale process.
Term of Lease
Some of the value in your business will come in the form of the remaining tenure under your lease. Buyers generally want the safety of knowing that they can continue to trade from the premises and, importantly, their financier will require that tenure is assured. If you are selling your business and you are nearing the end of your term without any options remaining under the lease, you should open a diallage with your landlord ASAP. There is no harm in talking to your landlord and exploring their appetite for further terms.
In summary, your lease is a critical factor in the viability of your business, and it is equally important in a sale context. Keeping your lease documentation in order, keeping your landlord informed, and starting the lease transfer process early will help ensure that you can hit your settlement date and avoid substantial delays.
– Nicholas Galle, Legal Director at AP Group
