Why Not to Overlook an “Overage Rent” Provision

Deciding to sell your business can be a momentous decision. Whether you’re retiring, relocating, or looking for a quick way out –regardless of your motivation, a seller must be meticulous when it comes to managing his or her expectations for the upcoming transaction. 

In particular, when the sale of a business involves a lease transfer or assignment to the new buyer, formerly overlooked clauses and sections of a seller’s original lease agreement could present potential problems. One provision in particular –an “Overage Rent” clause –affords consideration and concern. 

Generally, an Overage Rent provision serves to compensate the landlord upon his or her consent to the seller’s transfer of the lease. Seems fair, right? Think again!

Take, for instance, the following language taken from a section of a lease regarding Overage Rent:

“If Landlord consents to any Transfer, Tenant shall promptly pay to Landlord…seventy-five percent (75%) of all rents and other consideration of whatever nature and however deducted…”

These two small words would have very significant consequences for an uninformed tenant-seller, as the phrase “other consideration” can be read to encompass the purchase price! Imagine closing a transaction with a purchase price of $100,000, only to find that, of that, now $75,000 will be due upon sale, made payable to your (now) former landlord. 

Often, in a hurry to consummate a transaction, clauses like the one discussed above can be glossed over to a party’s detriment, especially if the meaning and effect of the clause isn’t fully understood. Such seemingly inconsequential sections in your original lease agreement could kill your deal. 

Thus, we stress to sellers the importance of having an experienced representative or lawyer to look over all of the documents and agreements associated with the transfer of your business in order to effectively avoid unseen lease assignment issues.