How to Quit Claim a Lease for a Business?

[UTCVenturesLtd]

Recession time hits small business owners.

What is done when it comes to quit claiming a lease for a business? I understand that basically the business owner signs over the business to the landlord and walks away in lieu of the balance of the lease.

Does the landlord have the forms? Where do you find them for Alberta?
Does a lawyer need to be involved in the transaction?
How much time is involved? How much notice is needed to do that?

Any information greatly appreciated...

 

[Thomas Beyer]

QUOTE (UTCVenturesLtd @ Sep 18 2009, 02:23 PM) Recession time hits small business owners.

What is done when it comes to quit claiming a lease for a business? I understand that basically the business owner signs over the business to the landlord and walks away in lieu of the balance of the lease.

Does the landlord have the forms? Where do you find them for Alberta?
Does a lawyer need to be involved in the transaction?
How much time is involved? How much notice is needed to do that?

Any information greatly appreciated...
depends on the lease term .. and on whether or not the owner has signed a personal guarantee on the lease.

Stop paying the lease .. and see what happens or talk to landlord an change the lease as he may have a hard time replacing the existing one with a similar or better one .. he might take the 30% lower lease !

Most commercial leases allow the landlord to lock the door and seize equipment .. after that he has to go to court usually and sue for his add`l claims say for your car or house or other assets that you may own ! However, some leases allow landlord to seize your car and other assets immediately ! The loss may be larger than the value of the business !

 

[UTCVenturesLtd]

QUOTE (thomasbeyer2000 @ Sep 18 2009, 10:02 PM) depends on the lease term .. and on whether or not the owner has signed a personal guarantee on the lease.

Stop paying the lease .. and see what happens or talk to landlord an change the lease as he may have a hard time replacing the existing one with a similar or better one .. he might take the 30% lower lease !

Most commercial leases allow the landlord to lock the door and seize equipment .. after that he has to go to court usually and sue for his add`l claims say for your car or house or other assets that you may own ! However, some leases allow landlord to seize your car and other assets immediately ! The loss may be larger than the value of the business !


Rent apparently was at one time about 4 months behind, and business owner has been trying to catch up and stay there...almost on target, but the business swings from very busy to very quiet making it hard to budget for. There are other creditors to pay as well. Owner does not want to go bankrupt either. The business is incorporated. Jan and Feb are bad months as it is for most retail, so the outlook of staying on top of things is reduced further. Lease expires at the end of March of a 3 yr term. Rent was paid for the final month, a first and lasts month rent at the beginning of the lease. Business has been for sale for a long time asking $49,900 now reduced for a quick sale and lease is about $2k a month... so $10k left owing on it. The business closes at the end of the month regardless.

My opinion ... It seems the best thing to do is for the business owner to sit down with the landlord. Either the landlord does a quit claim and keeps the business (worth more than $10K) to offer to the next suitable tenant or the business owner takes out a loan or makes payments to finish off the lease and disassembles the business selling off the equipment and leaving empty space. So does the landlord want a turnkey business to offer to a potential client or rather the dismantled empty space... $10k vs say 4X that in a business shell???? The business owner would like to walk away from that lease, but if they got to pay, then the salvage what they can and they pay the lease til it is over. I guess that is one of the situations that arises when you deal with commercial leasing.

 

[Thomas Beyer]

QUOTE (UTCVenturesLtd @ Sep 19 2009, 03:06 AM) less.

... and keeps the business (worth more than $10K) to offer to the next suitable tenant or the business owner takes out a loan or makes payments to finish off the lease and disassembles the business selling off the equipment and leaving empty space. So does the landlord want a turnkey business to offer to a potential client or rather the dismantled empty space... $10k vs say 4X that in a business shell???? ..

Well a typical case of being underfunded as a business .. the business may not be worth 29K or even 10K .. it is worth what someone is willing to pay .. it may be best to just walk out the door for the current "business" owner and credit it to the "lessons learned" asset column of life .. and move on ..

a running business with a strong track record of profitability and growth projections is worth far more than a failing retail business with a lease that is in arrears .. 3X easy .. so to get the $40,000 an injection of cash and perhaps another year or two of operations may be necessary to sell it for 4X .. but only the business owner can assess whether this makes sense !

btw: ask me how I learned this .. yes the hard way in a restaurant that I co-owned ... as I was faced with exactly that decision .. I did decide to invest and we sold it about a year later !

 

[UTCVenturesLtd]

QUOTE (thomasbeyer2000 @ Sep 19 2009, 10:47 AM) Well a typical case of being underfunded as a business .. the business may not be worth 29K or even 10K .. it is worth what someone is willing to pay .. it may be best to just walk out the door for the current "business" owner and credit it to the "lessons learned" asset column of life .. and move on ..

a running business with a strong track record of profitability and growth projections is worth far more than a failing retail business with a lease that is in arrears .. 3X easy .. so to get the $40,000 an injection of cash and perhaps another year or two of operations may be necessary to sell it for 4X .. but only the business owner can assess whether this makes sense !

btw: ask me how I learned this .. yes the hard way in a restaurant that I co-owned ... as I was faced with exactly that decision .. I did decide to invest and we sold it about a year later !


Thanks Thomas for your input! The old school of "Hard Knocks", but it is really a learning experience and now you can put yourself in the shoes of someone going through the same aggravation. (Psst... I am curious to know if you were able to get out of the restaraunt business with your tail feathers still intact in those early learning years.)

A business is something like owning an old car. At what point do you stop sinking money into the jalopy. As time goes on, you will have been able to have paid off a new car if you keep fixing the old one. (Unless it is an antique) I think that is the danger of getting involved with really "any" business as i see it. You can make projections, but have to prove them within a time frame. It is said that the average amount of time needed for a business to take hold is 5 yrs. Then the amount of money invested starts to become way more than what the business is worth... (ouch) and you have been feeding the debt monster hoping the profits to overtake the beast if you can make things last a little longer, do more advertising or ??? Still on the negative side is the high number of new businesses that fail for one reason or another. And yet if you succeed, a business can quickly repay a large debt with the amount of profits it takes in. Businesses can be a very powerful income source.

I prefer to buy real estate. You know the cost, upgrades upfront and then real estate gets paid down as time goes on. The risk factor is lower because you have a hard asset and not a pipe dream.

 

[Thomas Beyer]

QUOTE (UTCVenturesLtd @ Sep 19 2009, 12:41 PM) ..
I prefer to buy real estate. You know the cost, upgrades upfront and then real estate gets paid down as time goes on. ..
in theory .. yes .. but real estate is a business too .. and if you pay too much .. or manage it poorly .. you too can lose money !

But yes, real estate "on average" is better as the ASSET is there even if poorly managed and it is far more liquid than a restaurant or a retail business .. far more potential buyers .. and far easier to finance up to 80% (or more even) with a cheap cheap mortgage .. this too is the reason why I am in the real estate business !

However, most businesses trade for a higher CAP rate of perhaps 25% to 50% (i.e. a lower P/E ratio of perhaps 2 to 4) than a piece of real estate .. so a business well managed can be much more profitable on the $ invested !

 

[UTCVenturesLtd]

As the story unfolds, the realtor with the listing suggests waiting til the end of the month when the listing expires, then to give the landlord a letter along with the keys clearly explaining the details of the demise. One of three things will happen...

1. The landlord might agree to having the equipment and fixtures as they sit subleased to someone else. The current owner can raise the price since the place is furnished and be able to pay the rent til the end of the lease.

2. The landlord takes the $50,000 business in lieu of about $12,000 rent money. He then finds someone to lease with the equipment in place.

3. The landlord gets upset, wants all the furnishings out and/or sold so he can collect his rent money asap. Threatens to sue, etc. (The business owner has no personal assets, drives a leased vehicle.)

Will the landlord go with 1, 2 or 3???

(Owner and 3 employees all have other jobs to move to after business closes at the end of the month.)

 

[Thomas Beyer]

QUOTE (UTCVenturesLtd @ Sep 21 2009, 06:15 PM) ...

Will the landlord go with 1, 2 or 3???
2) or 3) ..

Is there a personal guarantee ? Then he might sue !