Why the Lease You Sign Today Can Determine Whether You Can Sell Tomorrow
By Dominique Maddox, CBI, CFE
Founder & President, EATS Broker
www.EATSbroker.com
When restaurant owners consider selling their business, they usually focus on sales, profits, equipment, and branding. Very few think seriously about their lease until it’s too late. A restaurant can be profitable, well-run, and popular with customers—yet still be unsellable because of poor lease terms. Buyers, lenders, and landlords all scrutinize the lease, and if it does not support a clean transfer, the transaction will stall, reprice, or collapse altogether.
Understanding how lease terms affect restaurant resale value is not optional; it is essential. Most entrepreneurs opening a restaurant focus on the menu, equipment, and grand opening. At EATS Broker, we often see this overlooked—the lease—that can haunt owners years later.
Most owners don’t realize their commercial lease isn’t just a monthly expense; it also determines the resale value of their business. Dallas Restaurant Broker Dominique Maddox, CBI, CFE, explains to clients: you aren’t just selling a brand and kitchen, but the legal right to occupy your space. If the lease is restrictive or expires, your business value can drop to zero overnight. The key takeaway: your lease terms can make or break your ability to sell your restaurant.
Why Lease Terms Matter More Than Most Owners Realize
Unlike residential real estate, a restaurant sale is about buying a going concern. Buyers seek more than just equipment or location—they want ongoing cash flow, operational continuity, and, crucially, the right to occupy the space via the lease. If the lease does not transfer cleanly, the business’s value is limited to its tangible assets. The key takeaway: the lease transfer is central to the sales’ value.
Remember: Strong leases attract buyers and lenders and ensure high resale value. Weak leases can make a business unsellable and rapidly devalue it.
How Buyers Evaluate Lease Risk During a Restaurant Sale
When a buyer reviews a restaurant opportunity, the lease is one of the first documents analyzed, often before financials are fully vetted. Experienced buyers immediately look at:
• Remaining lease term
• Option to renew
• Rent related to sales
• Assignment and language transfer
• Personal guarantee exposure
• Exclusive clause
• Rent escalation schedules
• Operating expense structure (NNN, CAM, pass-throughs)
• Rent percentage clause
Restaurant Business Broker Tip: Any weakness in these areas increases perceived risk, thereby lowering valuation.
3 Critical Lease Clauses That Affect Your Exit Strategy
To maximize your resale value at www.EATSbroker.com, you must negotiate these three areas long before you get a restaurant valuation and decide to sell a restaurant.
1. Assignment & Transfer Clauses: The Most Overlooked Deal Killer
Many restaurant owners never read—or fully understand—the assignment clause in their lease. This is a costly mistake.
Problematic language may:
• Require landlord consent “at sole discretion.”
• Allow the landlord to terminate upon sale
• Trigger rent increases or lease restructuring
• Force the buyer to sign a brand-new lease
Restaurant Broker Tip: Clean, simple assignment language boosts certainty and business value. Avoid clauses that limit transferability.
2. Lease Duration and Renewal Options
Lenders—especially those providing SBA loans—typically require the lease term (including options) to match or exceed the loan term (often 10 years).
- Key takeaway: Short lease terms can prevent buyers from getting financing, forcing a much lower sale price. Always plan for longer lease terms if you intend to sell.
- The Goal: Secure an initial term with multiple 5-year renewal options that are transferable to the next owner.
3. Personal Guarantee Release
Many owners are shocked to find they stay “on the hook” for the rent even after they sell the restaurant. If a lease includes a personal guarantee, buyers will examine:
- Whether the seller is released at closing
- Whether the guarantee transfers to the buyer
- Whether the landlord requires additional security
- Unresolved personal guarantees can delay closings and expose sellers to ongoing liability long after the sale.
Restaurant Broker Tip: The goal should be to negotiate a “Good Guy Clause” or a provision that releases the original guarantor once the new buyer is vetted and takes over.
Rent-to-Sales Ratio: When Rent Becomes a Deal Breaker
Rent is one of the largest fixed expenses in a restaurant. Buyers typically expect rent to fall within a reasonable percentage of gross sales.
When rent is too high:
• Cash flow is reduced
• Financing becomes difficult
• Valuation multiples compress
Key point: High rent signals risk and lowers offers, regardless of present profits. Buyers discount accordingly.
Most restaurant owners negotiate leases with one goal: opening the restaurant. They aren’t thinking about the exit strategy, buyer financing, assignability, or long-term marketability.
Don’t Negotiate Alone
Key takeaway: Have expert representation when negotiating your lease. Professionals can spot problematic terms that may derail or diminish a future sale.
In summary, EATS Broker provides the expertise to ensure your lease enhances, not hinders, your business value when selling.
About the Author
Dominique Maddox, CBI, CFE is the Founder and President of EATS Broker, a boutique restaurant brokerage specializing exclusively in the sale of restaurants, bars, and hospitality businesses across Texas and the Southeast. Learn more at www.EATSbroker.com.