How to Handle Leases and Long-Term Agreements in M&A

Leases and long-term agreements don’t usually get much attention from founders until a deal is underway.

That’s when they become very important.

Because in a transaction, these agreements aren’t just operational details—they are binding obligations that transfer with the business, shape deal structure, and directly impact risk. In many cases, they also represent some of the most rigid and least flexible parts of the company being sold.

You can renegotiate a growth plan. You can restructure compensation. You can optimize operations.

But a long-term lease? A multi-year vendor agreement? A restrictive service contract?

Those don’t move easily.

This is why sophisticated buyers spend a significant amount of time reviewing these agreements during diligence. And it’s why founders who ignore them until late in the process often find themselves reacting instead of negotiating.

It’s a topic we see come up frequently at Legacy Advisors and one that aligns with a broader principle discussed on the Legacy Advisors Podcast and in The Entrepreneur’s Exit Playbook (https://amzn.to/3NOnNVH): the businesses that achieve the best outcomes are the ones that are not just performing well—but are structured in a way that makes them easy to transfer.

Leases and long-term agreements are a big part of that.

Why These Agreements Matter More Than Founders Expect

From a founder’s perspective, leases and long-term contracts are often viewed as necessary components of running the business.

You need space. You need suppliers. You need service providers. You lock in agreements to ensure continuity and stability.

From a buyer’s perspective, those same agreements represent fixed commitments.

They are asking:

• Are these agreements above or below market?
• How long are we locked in?
• What are the termination rights?
• Are there escalations or hidden costs?
• Can these agreements be assigned or transferred?
• What happens if the business changes post-close?

These questions matter because long-term agreements can either support value—or constrain it.

A favorable lease in a prime location with reasonable terms can be a major asset.

An above-market lease with restrictive terms and no flexibility can become a liability.

The same applies to vendor and service agreements. What worked well for the founder during growth may not align with how the buyer intends to operate the business moving forward.

The Transferability Problem

One of the biggest issues with leases and long-term agreements in M&A is transferability.

Just because you have a contract doesn’t mean you can transfer it.

Many leases and long-term agreements include:

• Assignment restrictions
• Consent requirements
• Change of control provisions

This means the buyer may need approval from:

• Landlords
• Vendors
• Service providers
• Strategic partners

And those parties are not obligated to make the process easy.

In fact, they often gain leverage in that moment.

A landlord may require updated terms. A vendor may push for price adjustments. A service provider may want to renegotiate the agreement entirely.

Even if consent is ultimately granted, the process can introduce delays and uncertainty—two things that work against the seller in a transaction.

Leases: More Than Just Rent

Leases deserve special attention because they are often one of the largest fixed obligations in a business.

But the risk isn’t just the rent itself—it’s everything attached to it.

Buyers will evaluate:

• Remaining term length
• Renewal options
• Rent escalations
• Maintenance responsibilities
• Assignment provisions
• Personal guarantees
• Co-tenancy clauses
• Termination rights

A long-term lease can be viewed very differently depending on the context.

If the location is critical to the business and the terms are favorable, it can increase value.

If the lease is above market, inflexible, or tied to the founder personally, it can become a point of concern.

One of the most common issues we see is personal guarantees. Founders often sign leases early in the life of the business when risk is higher. Years later, when the business is being sold, that personal guarantee is still in place.

Buyers typically expect those guarantees to be removed at closing.

That creates another layer of negotiation—with the landlord.

Vendor and Service Agreements: The Hidden Constraints

Long-term vendor and service agreements can be just as impactful as leases, but they’re often less obvious.

These agreements may include:

• Supply contracts
• Software agreements
• Outsourced services
• Distribution agreements
• Manufacturing relationships

At a glance, they may look like stable, predictable arrangements.

In a transaction, they are evaluated differently.

Buyers want flexibility.

They want to know they can:

• Adjust pricing
• Change vendors if needed
• Integrate systems
• Optimize operations

If agreements are too rigid, too long-term, or too restrictive, they limit that flexibility.

That doesn’t necessarily kill a deal—but it can change how the buyer values the business.

How Buyers Adjust for Risk

When buyers see risk in leases or long-term agreements, they don’t ignore it—they adjust.

Sometimes that adjustment is straightforward, like a lower valuation.

Other times, it shows up in more subtle ways:

• Holdbacks tied to lease assignments
• Conditions requiring consent before closing
• Extended diligence timelines
• Requests to renegotiate agreements pre-close
• Increased scrutiny across other areas

In some cases, buyers may even require the seller to resolve specific issues before proceeding.

For example:

• Securing landlord consent
• Removing personal guarantees
• Renegotiating unfavorable terms

This is where founders start to feel the impact.

They may have built a strong business, but now they’re dealing with constraints they didn’t anticipate.

The Timing Challenge

One of the most delicate aspects of handling leases and long-term agreements is timing.

When do you approach a landlord?
When do you engage a key vendor?
When do you request consent?

Move too early, and you risk signaling a transaction before it’s certain.

Move too late, and you risk delaying the deal.

There’s also a relationship component.

Landlords and vendors may react differently depending on how the situation is presented. A well-managed communication strategy can preserve goodwill. A poorly handled one can create friction.

This is why these conversations need to be planned—not improvised.

What Preparation Looks Like

The founders who handle this well do one thing differently: they review these agreements before they go to market.

Not during diligence. Not after signing an LOI.

Before.

That means:

• Identifying all leases and long-term agreements
• Understanding key terms and obligations
• Reviewing assignment and change of control provisions
• Identifying where consent is required
• Evaluating whether terms are above or below market
• Flagging personal guarantees

This doesn’t mean everything needs to be renegotiated.

It means you need clarity.

Because clarity allows you to:

• Structure the deal appropriately
• Prepare for consent processes
• Manage timelines
• Communicate effectively with buyers

And most importantly, it allows you to avoid surprises.

The Strategic Advantage of Getting Ahead of It

When founders address leases and long-term agreements early, they gain a significant advantage.

They control the narrative.

Instead of reacting to buyer concerns, they can explain:

• What agreements exist
• Why they’re structured the way they are
• What risks (if any) are present
• How those risks are being managed

That builds confidence.

And confidence is one of the most valuable assets in a transaction.

It keeps the focus on value creation—not risk mitigation.

Final Thoughts

Leases and long-term agreements are often treated as background details in a business.

In M&A, they move to the foreground quickly.

They affect:

• Transferability
• Flexibility
• Risk
• Timing
• Deal structure

And ultimately, they affect outcomes.

The founders who achieve the best exits understand that a great business isn’t just one that performs well—it’s one that can be transferred cleanly, without unnecessary friction.

That requires looking closely at the agreements that bind the business together.

Because when those agreements are aligned, understood, and properly managed, they support the deal.

When they’re not, they become obstacles.

And in M&A, obstacles have a cost.

Need help with M&A? Contact Legacy Advisors today!

Frequently Asked Questions About How to Handle Leases and Long-Term Agreements in M&A

---

1. Why do buyers care so much about leases and long-term agreements during a transaction?

Buyers care because these agreements represent fixed obligations that they cannot easily change after closing.

When a buyer acquires a business, they’re not just buying revenue—they’re inheriting commitments. Leases, vendor contracts, and long-term service agreements often lock the business into specific costs, terms, and relationships that may not align with the buyer’s strategy.

For example, a lease that seemed reasonable when the business was smaller might now be above market. A long-term vendor agreement might restrict the buyer’s ability to optimize pricing or switch suppliers. A software contract may limit integration with the buyer’s existing systems.

From the buyer’s perspective, these agreements affect flexibility. And flexibility is critical post-acquisition.

If too many agreements are rigid or unfavorable, the buyer may view the business as harder to operate or improve. That perception translates into risk—and risk almost always impacts valuation, deal structure, or both.

---

2. What happens if a landlord or vendor refuses to approve an assignment?

This is one of the more serious risks in a transaction, and it’s why planning ahead matters so much.

If a landlord or vendor refuses to approve an assignment, the buyer may not be able to operate the business in the same way post-close. That can create a fundamental issue, especially if the agreement is critical to operations.

In practice, a few things can happen.

The deal may be delayed while negotiations continue. The parties may attempt to restructure the agreement. The buyer may adjust the purchase price or deal terms to account for the risk. In more extreme cases, the deal could fall apart entirely.

Even when consent is ultimately granted, the process can introduce leverage for the counterparty. A landlord might request higher rent. A vendor might push for new pricing or revised terms.

This is why understanding consent requirements early—and managing those relationships carefully—is essential to maintaining control over the transaction.

---

3. How do personal guarantees on leases affect a business sale?

Personal guarantees can become a significant issue during a sale, especially if they were signed early in the life of the business.

From the buyer’s perspective, they typically expect to step into the lease without the seller remaining personally liable. That means the landlord must agree to release the founder from the guarantee and accept the buyer (or the new entity) as the responsible party.

That is not automatic.

The landlord may:

• Require financial information from the buyer
• Request additional security
• Renegotiate terms
• Delay approval

If the landlord is unwilling to release the guarantee, it can create tension in the deal. Founders are understandably hesitant to remain personally liable after exiting the business.

This becomes a negotiation point—and sometimes a sticking point—between all parties involved.

The earlier this is identified, the more time you have to address it without pressure.

---

4. Should I try to renegotiate leases or contracts before going to market?

It depends on the situation, but in many cases, yes—strategically.

If you identify agreements that are clearly unfavorable, overly restrictive, or likely to create friction in a transaction, it can make sense to address them before going to market. Doing so gives you control over the process and avoids having to negotiate under the pressure of a live deal.

That said, renegotiation needs to be handled carefully.

You don’t want to trigger unnecessary concern from landlords or vendors. You also don’t want to spend time fixing issues that may not materially impact the transaction.

The goal isn’t perfection—it’s clarity and risk reduction.

In many cases, simply understanding the agreements and having a plan is enough. In others, proactive renegotiation can improve deal certainty and strengthen your position with buyers.

---

5. How can I prepare leases and long-term agreements to avoid issues during a sale?

Preparation starts with visibility.

You need a clear understanding of all leases and long-term agreements that impact the business. That means identifying not just the obvious contracts, but also any agreements that could affect operations, costs, or continuity.

Once identified, review the key elements:

• Assignment provisions
• Change of control clauses
• Consent requirements
• Term lengths and renewal options
• Financial terms and escalations
• Any personal guarantees

From there, assess risk.

Which agreements are critical? Which require consent? Which may create friction? Which are above or below market?

The goal is not to fix everything—it’s to eliminate surprises.

When you go into a transaction with a clear understanding of your agreements, you can guide the conversation, set expectations, and maintain leverage. That’s a significant advantage compared to discovering these issues in the middle of diligence, when time and flexibility are limited.