July 28, 2026|Publications
By Matthew B. Levine, Esq.
In asset sale transactions, significant attention is devoted to purchase price, working capital adjustments, representations and warranties, indemnification provisions, vendor contract reviews and disclosure schedules. However, one of the most important aspects of diligence is often the review of the target company’s real estate leases. Because an asset sale typically requires the assignment of leases to the buyer, understanding the rights, obligations, and restrictions contained in those leases is critical to a successful transaction.
A thorough lease review by experienced counsel helps identify critical items. For example, many leases require landlord consent for the assignment of a lease and whether any conditions must be satisfied before landlord’s consent will be granted. Because buyer and seller are reliant upon a third party – here, the landlord – failure to address these issues early can result in delays, increased costs, or even the inability to transfer a key operating location resulting in a failure of a condition to close. This only becomes more pronounced when dealing with a portfolio of leases that are often not standardized other than for the largest national tenants.
Lease diligence also provides valuable insight into the financial obligations associated with the business. Rent escalations, operating expense pass-throughs, maintenance obligations, and renewal options may significantly impact valuation and future operating costs. Conversely, favorable lease terms—such as below-market rent or valuable extension rights—can enhance the attractiveness of the acquisition.
Equally important, lease review helps ensure operational continuity. Use restrictions, exclusivity provisions, and default clauses can affect the buyer’s ability to continue operating the business as intended after closing. Identifying these issues before signing allows parties to address risks and avoid post-closing surprises.
For sellers, proactive lease analysis can streamline the transaction process and increase buyer confidence. An organized seller will have primed the buyer with a lease summary of the most critical items. For buyers, lease review serves as an essential tool for evaluating risk, forecasting occupancy costs and potential future relocation costs (which may be detrimental for businesses with long-term goodwill based upon location both for customers and for employees), and preserving the value of the acquired assets.
Ultimately, lease review is far more than a routine diligence exercise. It is a critical component of transaction risk management that helps establish and protect deal value, facilitate a timely closing, and support a smooth transition of business operations.
Buchalter LLP has seasoned real estate attorneys throughout our offices that can serve as specialists for this integral part of a successful closing.
Matthew Levine is a partner at Buchalter’s Scottsdale office and a member of the Real Estate and Corporate practice groups. For questions about this article or media inquiries, you can contact Matthew at mlevine@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
