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  • Writer's pictureEric Williams

How strategically valuable is your business location?

A business’ location may be strategic for a variety of reasons including: high visibility or easy access; proximity to key vendors or suppliers; proximity to key competitors; proximity to transportation sources (i.e. airport, rail line, freeways, port city); or grandfathered building codes or zoning.

Having a strategic location is a strength and generally makes a business more marketable, but if there is any uncertainty about the business being able to continue its operations from its strategic location, it could be detrimental to a business sale. For example, if there is a limited term remaining on a lease and the landlord is unwilling to extend the lease or enter into a longer-term lease, the buyer faces the risk that it may be required to move the business and lose the strategic benefits associated with the current location.

If the benefits of the strategic location are strong enough, and there is uncertainty about the future ability to lease the real estate it may cause a buyer not to buy the business or to seek a lower price to compensate for this risk.

Ways to offset the risk of a strategic location include negotiating an assignable long-term lease, negotiating an assignable option-to-buy, or obtaining an assignable first-right-of-refusal to buy the building. However, these remedies may have risks of their own - for example, a longer-term lease, even after assigned to a buyer, will likely ultimately be guaranteed by you as the original lessee, so engaging legal, accounting, and transaction advisors to explore risk-mitigation options would be prudent.


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