This week’s blog continues leasing definitions regarding required notices for your leases. Certain occurrences during the life of the lease require that you notify the leasing company.
A missed notice usually means your total lease cost increases or worse, you find you are in a technical event of default. The longest section in any lease is the Default section. You do not want to find out the hard way about what happens to your company!
Let’s look at ownership or corporate structure and end of lease in more detail.
Ownership or corporate structure change: The customer must notify the leasing company, usually within 30 days, if it is changing its ownership or corporate structure. In short you need the blessing of the leasing company to change owners, partners, corporate structure or company name.
TIP: Don’t wait until the last 30 days before telling the leasing company about your changes.
- If the company is going to have new owners, the leasing company will need to approve the new entity’s credit as if the lease is new and the business is a start-up. Leasing companies seldom finance new ventures. There are exceptions.
- It is helpful if the new company owners currently operate an identical business and the transaction will be rolled into their existing organization. The leasing company views this as a lease assumption. Full credit and financial information will be required.
- Be prepared with an alternate plan in case the approval takes an unexpected length of time.
TIP: If the leasing company does not approve the new owners, the lease language requires immediate payoff and full penalties will apply. If this happens, negotiate the payoff amounts and terms.
REAL LIFE: A large Midwestern automotive parts distribution company forgot to give timely notice to the landlords (15 locations) and leasing companies (3 major leasing companies) regarding the sale of their company. The sale closing was delayed a week while the accounting manager and I contacted all the involved lessors to secure their approval of the lease assumption.
All lessors had to give us their approval in writing before the sale closed. The meter was running and legal fees mounted as five law firms representing all the parties involved in the sale waited for lessor assumption and approvals.