Buying a business

Buying a business

Any trader wishing to sell his business has necessarily wondered whether he should sell his business asset (i.e. goodwill) or his leasehold rights.

And this question seems quite legitimate as the two seem so similar.

However, there are many differences.


It should be remembered, if necessary, that the transfer of a business asset involves the transfer of a set of assets, including the leasehold rights.

Thus, when it is the business that is transferred, it is through it that the lease contract, the clientele, the equipment necessary for the operation and sometimes even the sign and the stock are transferred.

Whereas in the case of a transfer of leasehold rights it is the lease, and only the lease, that is sold.

So, how is it possible to know whether the business or the leasehold rights shall be sold ?

The answer lies in what happens to the customers.

Indeed, there can be no transfer of a business asset without the transfer of the customer base.

Therefore, if the customer base is not transferred to the transferee – either because the transferor’s business is completely different from that of the transferee or because the customer base is non-existent – it may only be a transfer of the leasehold right.



The lease, nothing but the lease

As its name explicitly indicates, it is therefore the only leasehold right that will be sold on the occasion of a transfer of leasehold rights.

It is, therefore, appropriate to pay particular attention to the charges and conditions of the lease before committing itself.

Most leases include mechanisms allowing the lessor to oppose the transfer. This is particularly the case with pre-emption and approval clauses.

And this is perfectly legal in the context of the transfer of the right to lease – provided, however, that it not arbitrary.


Some advice in this regard :

Particular attention must, therefore, be paid to the assignment clause to ensure that the conditions for the validity of the assignment are met.

Failure to do so could have significant consequences both for the transferee, whose lease could be terminated or not renewed by the Lessor, and for the transferor, whose liability could be engaged by the evicted transferee.

Other clauses of particular interest to the transferee are those relating to the purpose of the lease and its duration.

it is important to ensure that the activity you wish to carry out in the premises is authorized by the lease. If not, you will need to go through a deferring procedure.


You should also check the remaining term of the lease and be particularly careful when the lease being transferred is in its final three-year period.

Indeed, in such a case, the renewal of the lease will not be automatic for the transferee insofar as he will not have operated his business for 3 years as required by article L. 145-8 of the French Commercial Code and he will not be able to claim to “complete” his years of operation with those of the transferor insofar as the business operated is not the same.

Linkea’s legal advisors may assist you in selling or buying a leasehold right and meet your needs.


Get accompanied by a lawyer!

Formalizing the related agreements, ensuring that the conditions precedent are met, analyzing the commercial lease and its ins and outs, and carrying out the registration formalities, are all reasons to call on a professional in this area.

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