Substitution and the legal aspects of a business acquisition

With substitution, the buyer of a business takes over the lease agreement for the business premises and steps into the seller's shoes as the new tenant. In the case of retail business premises, this is even a statutory right: if the landlord does not cooperate, the court may grant the substitution. Because a large part of a company's value often lies in its location, this is a crucial point in a business acquisition. Below, you can read how it works and what conditions apply.

What is substitution?

Substitution means that one party transfers its contract to a third party, who takes its place. In the case of a business acquisition, this can mean that the new owner takes over the lease agreement for the business premises. The buyer then becomes the new tenant, bound by the lease agreement and, for example, obliged to pay rent to the landlord.

What are the consequences of substitution?

In the event of substitution, the rights and obligations of the tenant transfer to the new owner. The latter becomes responsible for, among other things:

• paying the rent;
• the maintenance of the building;
• compliance with the lease agreement.

Rights such as tenancy protection are also transferred. This works out differently for the parties involved:

• Original tenant: can terminate the lease agreement and potentially realize a higher takeover price.
• New owner: does not need to look for a new property.
• Landlord: does not have to look for a new tenant (positive), but cannot choose with whom to enter into a rental agreement (negative).

What conditions apply to substitution?

In the case of ordinary contracts, substitution is only possible with the consent of all parties — this can be difficult, for example with supplier contracts when acquiring a sole proprietorship. However, in the case of lease agreements for commercial premises, substitution is regulated by law as a right. For this to happen, three conditions must be met:

1. There is a business acquisition;
2. the new owner can demonstrate that he can fulfill the lease agreement (for example, with a bank guarantee);
3. The previous owner has a substantial interest or good reason to sell (for example, retirement).

If the landlord does not cooperate, the substitution can be enforced through the court. The judge will then assess whether the conditions have been met. TODO_VERIFY: the statutory regulation applies specifically to certain business premises (retail business premises) — have each situation assessed to determine whether your property falls under this.

Ensure clarity in a timely manner

It is important to have clarity regarding a potential substitution during the sales process. Whether this is possible has direct consequences for the acquisition price and for the security of both buyer and seller.

Frequently Asked Questions

What does substitution entail in a business acquisition?

The buyer assumes the lease agreement for the business premises and becomes the new tenant, with all associated rights and obligations.

Do I need permission from the landlord?

In the case of commercial premises for small and medium-sized enterprises, substitution is a statutory right. If the landlord refuses, the court may grant the substitution provided the conditions are met.

What conditions apply to substitution?

There must be a business acquisition, the new tenant must be able to demonstrate the ability to fulfill the contract, and the seller must have a substantial interest in the sale (such as a pension).

Does substitution also apply to other contracts?

For ordinary contracts, only with the consent of all parties. Statutory law applies specifically to the lease of commercial premises for small and medium-sized enterprises.

Need help with a substitution or a business acquisition?

Substitution is often decisive for the value and certainty of an acquisition. We guide you through the process and provide legal assistance during the acquisition.

View our expertise in real estate law and corporate law, or schedule a no-obligation intake consultation.