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    8 Replies Latest reply on Aug 17, 2009 3:31 PM by DeeTee

    Buying biz, taking over a commercial lease

    fabiosec Newbie
      Hi folks,

      I'm in the process of buying a 13 year old business and I'll either be taking over the existing lease or negotiating a new one. Now, in order to approve me as a tenant the property management company wants to see my last 3 tax returns. I find this kind of odd because my previous career (or current, actually, since I haven't left yet) is in a different industry and has absolutely nothing to do with this new business, so my previous earnings are irrelevant. Is this even a normal request? Thanks in advance!
        • Re: Buying biz, taking over a commercial lease
          TJMorehead Adventurer

          Property management companies request financials for several reasons, 1. To verify whether or not you are financially able to maintain rent, and 2. It gives the insight on how much money you make, which may give you less room to negotiate.

          It would be in your best interest to get a commercial realtor to represent you to handle your lease acquisition. Is the business an additional purchase? Or is this a bundle deal, the business and the space?

          Warm regards,
          TJ Morehead
            • Re: Buying biz, taking over a commercial lease
              fabiosec Newbie
              Thanks for your responses guys. I understand the reasons why property management may ask to see tax returns. My main issue with this is: how relevant is my prior earning history to this new venture if they are completely different industries? In other words they cannot determine if I will be or won't be able to fulfill my obligations by looking at my tax returns, since I won't be getting that money anymore, instead they should look at the financials of the business I'm purchasing, since that'll be my new source of income. If they want to get an idea of how responsible I've been financially they should probably just look at my credit report. Does this make sense?

              For you to have an idea of what I mean by "different businesses": I'm an insurance agent who's purchasing an established art gallery because I don't enjoy insurance anymore. Art has been a hobby for quite some time and I really love it, so I'm taking the plunge (hopefully)!
                • Re: Buying biz, taking over a commercial lease
                  TJMorehead Adventurer
                  Hi Fabiosec,

                  You make a valid point. Since you are changing industries, it doesn't make sense to me to request your tax returns. I would maybe look a little deeper into why thy want you to provide the documents considering your transition. I still recommend that you get a commercial realtor to help you with the commercial lease. So that your interest is protected. Where are you located? I may have a recommendation.

                  Keep me posted on your art gallery. I have two potential clients both nationally recognized who are artists. If you have a website, pass me the link. My email is moreheadsconnections@gmail.com.

                  Warm regards,
                  TJ Morehead
                  1 of 1 people found this helpful
                  • Re: Buying biz, taking over a commercial lease
                    muybne2 Newbie
                    Your point is taken, but the reason they're asking for your tax returns is simple: if you default on the lease for some reason, they want to know if you have the financial resources to enable them to collect against you personally. Your past earning power is a good indicator of your future earning potential, in the event the art gallery doesn't turn out to be success (God forbid). They're just doing business as usual. Your credit report will most likely also be taken into account. If I were you, I would resist signing a personal guarantee. Think long and hard about doing that; calculate in advance the total amount of the lease payments over the life of the lease, so you can make the call whether you could withstand having to honor this financial obligation if for any reason the business defaults on the lease. Good luck!!
                • Re: Buying biz, taking over a commercial lease
                  LUCKIEST Guide
                  Welcome to this web site and the best of luck in the process of buying a 13 year old business.
                  Also welcome to the real world where banks, credit companies and people want to see who
                  you are and where you have been over the past 3 or more years plus how much you earn
                  and maybe what other income you have.
                  Do you have a Business and Marketing Plan??
                  Do you know about SCORE?? SCORE is FREE
                  Do you have an Accountant??, A Lawyer?? and an Insurance Broker??
                  Keep us up to date as you progress
                  LUCKIEST
                  • Re: Buying biz, taking over a commercial lease
                    LUCKIEST Guide
                    Hi again, You wrote "in order to approve me as a tenant the property management company
                    wants to see my last 3 tax returns"
                    Welcome to the club. In today's (Tues Mar 18) Wall Street Journal PERSONAL the headlines
                    WHY HOSPITALS WANT YOUR CREDIT REPORT
                    So YES it is normal
                    Again LUCKIEST
                    • Re: Buying biz, taking over a commercial lease
                      lntelicapital Wayfarer

                      Take a look at our landing page, if we can assist at some point, please let me know - ask for Brian - www.intelicapital.com
                      • Re: Buying biz, taking over a commercial lease
                        DeeTee Wayfarer
                        Fabiosec, I'm in a very similar situation trying to buy an existing business and aquiring a lease. I posted another thread because I was questioning the financial and credit requirements as well, but didn't get any responses. Anyways, I agree that the using your past earnings and not accounting for industry change is like comparing apples to oranges. Yet, I understand the rationale behind doing so. I'm moving from a salaried position in the advertising industry, to owning a retail business. Can anyone share some concrete numbers as to what level of income and assetts is ideal for most property owners? At what point does previous salary and assets inhibit your ability to negotiate?