Should You Sell the Real Estate With the Business, or Keep It?
When selling a Washington business that owns real estate, one of the earliest decisions is deceptively simple: Should the property be part of the sale, or should the seller keep it and lease it back to the buyer?
Both approaches can work, but each carries different legal and financial consequences.
Option 1: Sell the Property with the Business
This is the cleanest path. The buyer acquires the operating company and the real estate in one transaction. Advantages include:
- The negotiations are simplified with one closing and one transfer
- The ownership structure is clear with no ongoing landlord-tenant relationship
- The financing is easier for the buyer because lenders like collateral
But sellers give up a long‑term income stream and may face tax consequences depending on their basis in the property.
Option 2: Keep the Property and Lease It Back
Some sellers prefer to retain the real estate and become the buyer’s landlord. This can make sense when:
- The seller wants predictable rental income
- The buyer prefers not to finance real estate
- The property has appreciated significantly
However, this structure requires a carefully drafted commercial lease. Issues like maintenance obligations, rent escalations, and renewal options can create friction if not addressed upfront.
Option 3: Sell the Business First, the Property Later
Occasionally, the parties separate the transactions for timing or tax reasons. If you choose this route, make sure the purchase agreement for the business clearly outlines:
- The timeline for the property transfer
- How rent will be handled in the interim
- Who bears responsibility for repairs
The Takeaway
There is no one‑size‑fits‑all answer. The right structure depends on your long‑term goals, tax posture, and the buyer’s financing. But the decision should be made early and ideally before the LOI is signed.
The business lawyers at Beresford Booth have extensive experience dealing with business, mergers and acquisitions. Please reach out at info@beresfordlaw.com or (425) 776-4100 to see how we can help.