Lease renewal on sale of a business

I understand when there is a change of business ownership, the seller of the business gets their bond back and the new buyer needs to put up a new bond/bank guarantee. What happens when the sale happens as a result of the sale of shares of the Company instead of the asset. So for example if the lease was in the name of ABC Co and the new buyer purchases the business by buying 100% of the shares of ABC Company, is it still a requirement for the buyer to renew and give a bank guarantee or given that the legal entity on the lease document is still the same the lease continues without a new bank guarantee?

Out of interest is it common to have a 3 month or a 6-month bank guarantee for new leases?

 

It could depend.

Was the initial bond a bank guarantee and/or a director's guarantee?

Depending on the lease it might be one or both. If the directors change then there would need to be a new directors guarantee but the bank guarantee might still be valid.

The length of the guarantee is negotiable. For shorter leases it is probably more common to be 3mths but longer one it would be 6mths. Where there is both a bank and directors guarantee I have some at 3mths for a long lease

 

The business is being sold, there's usually a clause covering assignment of lease or sale of more than 50% of the shares.

You don't know the incoming tenant nor their ability to run the business successfully.

Depending upon your clause relating to the assignment of the lease, I usually consider the following conditions:

• The new business enters a new lease for the same term as the existing (If there's less than 1 year to go or there's no option remaining)
• The current lessee's bond remain until expiry of the current lease/outgoing director's guarantees required to cover the performance of the incoming business owners
• Anything else you can so to shore up your position.

 

This has been answered but I'll just address a couple of points for future reference.

No, this is not correct. I'd suggest it's better to assume the seller of the business doesn't get their bond back until the end of the lease term...unless you can negotiate otherwise with the lessor.

It's depends on what you can negotiate. Some landlords insist on 6 months bond, some are happy to accept 6 weeks in order to get their property leased.
In my area...commercial office space on the lower north shore, bonds equal to 3 months gross rent (incl parking & GST) is more common.

 

if it was me buying a business, i would buy the business, because that is the asset, and buy that asset via a new company pty ltd, which would then seek a lease assignment. I wouldn't buy 100% of the shares in the existing company to secure the asset, because then i would also be assuming 100% of the known debts and liabilities and 100% of the unknown debts and liabilities. Must be a good deal, or a hypothetical.

 

I don’t think you’d be under an obligation to return the bond. There’s no change of owner. Only the shareholder of the owner has changed.

 

There is lots of advice on here and not many follow up questions/fact checking. I would encourage you to speak with a layer. Legal advice is necessary, but there is a few interrelated issues worth mentioning:

• Bond / Bank Guarantee (these are two different things)
• Lease
• Guarantor (not mentioned, but worth considering)

To vaguely consider this the points above, let us remember a company is a separate legal entity. If the company has paid a bond and the new buyer purchases the shares of the business, when that bond is repaid, it is an asset of the company. HOWEVER, the share sale deed may have a separate agreement between the buyer and the seller regarding the bond.

Now, this brings me onto the lease with the respective share sale agreement. It is more than likely that the leases obligation sits with the company. HOWEVER, it is common for the lease to have a guarantor. Now it is unlikely that the Seller would want to stay on as guarantor for the lease, and they may wish to assign this responsibility to the Buyer. HOWEVER, the landlord may prefer to keep the Seller on the hook as they have better financial capacity. SO we don't really know who is guarantor...

WOAH, a new lease? Has the last lease been terminated? A new lease shouldn't be spoken about as the company may already have a lease.

So after all that consideration, all I can tell you is:

• Who is the lease with? Unsure.
• Who should pay for the bond? it depends.
• Who would guarantee the lease? it depends.
• Should I seek personal legal advice? YES!

There are many unclear points in the questions you're asking, it is irresponsible to take advice from the facts provided. I would speak to a solicitor who is experienced in this area. They would be able to ask the right questions, seek and understand the correct documents to provide accurate answers. It's never fun giving wishy-washy answers, but these are great questions to remember it's important to do it right.