We had a solid offer on our coffee shop, buyer was pre-approved, everything looked good. Then the SBA underwriter said the lease was too short for the loan term. Buyer needed at least 10 years remaining with options; we had 4 years left on a 15-year lease. Corporate (we franchise) initially said no to an extension unless we signed a new 10-year term with personal guarantee and a bunch of upgrade requirements. We were already selling, so that was a nightmare. Took about 6 weeks of back and forth with their real estate dept. What finally worked: our broker got a letter from the buyer's lender explaining exactly what was needed, and we offered to sign a short extension with a 5-year option that corporate could reject if the buyer defaulted. Basically we had to convince corporate the buyer was qualified so they wouldn't lose a franchisee. Anyone else dealt with this? I feel like nobody warns you that the lease can kill a deal at the finish line.
How I got corporate to extend our store lease so the buyer's SBA loan would clear
Yep, seen it. SBA rules on lease term are brutal. Had a similar thing with a laundromat we sold a few years ago. Took forever to get the landlord to put an extension in writing. Six weeks is actually not bad all things considered.
Wait, corporate required a personal guarantee for the extension? That seems backwards. They already had one from the original lease, right?
The personal guarantee thing got me too. But honestly, I've learned that corporate real estate departments don't care about your sale. They care about their rent roll. The buyer's lender letter was smart though — it gave them a reason to justify the exception internally. Most of these decisions are just CYA.
Right, they need something to show their boss. "Buyer's lender requires X" is better than "seller asked for X."
Did the buyer's lender actually put that in wrting? In my experience SBA underwriters will say stuff verbally that they won't put on letterhead. Also, was it a 7(a) or 504?
7(a). And yes, the lender wrote a letter on their letterhead specifying the minimum remaining term and that the loan could not proceed without it. I think that was the key piece
Nice. Filing that away for later. My lease is up in 6 years and I'm already thinking about how this is going to go when I sell.
OP,you said you offered an extension with a 5-year opti on that corporate could reject if the buyer defaulted. How did you structure that exactly? Was it in the assignment or a separate amendment? Curious because our landlord wants a full new lease, not just an amendment, and I'm worried the buyer's attorney will balk.
this thread is making me glad my landlord is a guy named Gary who returns calls. Good luck to everyone dealing with corporate.
Gary sounds like a gem. Corporate real estate is a diffe rent species.
Yellowdog — it was a separate lease amendment, not part of the assignment. We did a 3-year extension plus a 5-year option. Amendment ran alongside the existing lease; assignment just referenced it. Buyer's attorney actually suggested it, so that helped. Still took forever to get corporate to sign because their legal team kept wanting to redline nonsense.
Thanks. Separate amendment makes sense. Our landlord wants a whole new lease doc with higher rent, which would blow up the buyer's pro forma. Might try the amendmenT route and see if they'll bite.