Agreement for Lease and Going Concern

Agreement for Lease and Going Concern: What You Need to Know

When a business is purchased, the process can involve a number of legal steps and documents. One of the key documents involved is known as an Agreement for Lease. This is an important agreement that sets out the terms of a lease that will be signed between the new business owner and the landlord.

In addition to the Agreement for Lease, there is also the concept of a Going Concern, which is a crucial consideration in any business sale. How do these two things relate to each other, and what do you need to know as a business owner or someone involved in the purchasing process? In this article, we’ll explore these questions in more detail.

Agreement for Lease: The Basics

An Agreement for Lease is a legal document that sets out the terms of a lease that will be signed between the new tenant and the landlord. Typically, an Agreement for Lease is used when a new building or property is under construction, and the tenant wants to secure their right to occupy the space before it is finished.

The Agreement for Lease will usually include details such as the rent, the length of the lease, and any terms or conditions that apply to the tenant. It is important to note that this document is not the same as a Lease: rather, it is a precursor to the Lease that ensures the tenant has the right to occupy the property once it is completed.

Going Concern: The Meaning and Significance

A Going Concern refers to a business that is actively operating and generating revenue. In the context of a business sale, a Going Concern is an important consideration for the purchaser. This is because it means the business is fully functional and profitable, and will continue to be so after the sale is completed.

When a business is sold as a Going Concern, it means that the purchaser is buying the entire operation – including assets, employees, and goodwill – rather than just the physical property or premises. This is an important concept to understand, as it has implications for things like tax liabilities, employee contracts, and other legal issues.

The Relationship Between Agreement for Lease and Going Concern

So, how do these two concepts relate to each other? In a business sale scenario, the Agreement for Lease will often include provisions that relate to the Going Concern status of the business. This is because the purchaser will typically want to ensure that they can take over the lease, and continue operating the business in the same location.

In some cases, the Agreement for Lease may require the landlord to agree to a transfer of the lease to the purchaser as part of the sale. This can be an important consideration, particularly if the business is reliant on the location, and moving would be costly or disruptive.

Conclusion

When purchasing a business that operates out of a leased property, it is important to understand both the Agreement for Lease and the concept of Going Concern. These two legal concepts are closely related, and understanding how they interact is key to ensuring a successful purchase and transition of ownership.

If you are involved in a business sale, it is advisable to seek the advice of a legal professional who can guide you through the process and ensure that all legal requirements are met. With the right preparation and support, you can navigate the complexities of an Agreement for Lease and Going Concern, and move forward with confidence in your new business venture.