Beyond basic lease terms, buyers should pay careful attention to assignment and assumption provisions that ensure the lease can transfer with the business in future sales. Additionally, buyers should consider negotiating first right of refusal (ROFR) clauses that give them priority if the seller later decides to sell the real estate. These protections help secure the business's long-term location stability while preserving future flexibility.

Due diligence essentials

When real estate is part of a business acquisition, thorough due diligence matters as much as ever. Environmental assessments are particularly crucial, especially for businesses in heavy industry or manufacturing.

Buyers should obtain surveys to confirm boundaries and verify zoning compliance, especially for businesses with special-use permits. Building condition, environmental liabilities, and zoning restrictions impact both operations and value, helping determine whether purchasing makes more sense than leasing.

Financial structuring

The financial structure of deals involving real estate requires careful consideration beyond just standard SBA loan terms.

Buyers with limited capital might pursue equity partners or seller financing, especially for the business side of the transaction. In some cases, sellers may be willing to offer short-term financing, though this is more common for the business itself than for the real estate.

Buyers should also consider whether the property is likely to appreciate. If the real estate ties up capital without generating a return, it could dilute the overall investment performance.

To buy or to lease

The real estate element can force buyers to face big decisions about whether to buy property or to lease, how to adjust for fair market rent, and how to structure financing.

The most successful buyers assess whether the real estate is truly integral to the business's success or merely convenient. For specialized or strategically located properties, ownership may make sense — particularly with SBA financing advantages. For standard commercial spaces, leasing often provides greater flexibility and lower initial capital requirements.

The fundamental deal structuring question is: Does it make sense for us to buy this building? What would be the advantages and disadvantages? Can we afford the building with the rest of the deal?

By carefully evaluating rent adjustments, conducting thorough due diligence, and structuring appropriate financing, buyers can navigate these complex transactions on their way to continued financial success.

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