You have a buyer for your business. The letter of intent is signed, due diligence is underway, and then the buyer’s attorney flags the copier lease with 36 months remaining. They want to know: does this obligation transfer with the sale, or does it stay with you?
The answer depends on how your business sale is structured and what your lease agreement allows. Get this wrong, and you could be making payments on a copier in someone else’s office for the next three years.
Asset Sale vs. Stock Sale: The Critical Distinction
In a stock sale, the buyer purchases your business entity (the LLC or corporation). All contracts, including the copier lease, automatically transfer with the entity. The leasing company does not need to approve the sale because their contractual relationship is with the entity, not with you personally.
However, your personal guarantee does not transfer automatically. The leasing company can still hold you personally liable if the new owner defaults. You must negotiate a release of your personal guarantee as part of the sale.
In an asset sale, the buyer purchases individual business assets (equipment, inventory, customer lists) but not the entity itself. The copier lease does not automatically transfer. You must formally assign the lease to the buyer with the leasing company’s approval, or terminate the lease separately.
Three Ways to Handle the Copier Lease in a Business Sale
Option 1: Transfer the lease to the buyer. This is the cleanest approach if the buyer wants to keep the copier. The buyer applies for credit with the leasing company, signs an assignment agreement, and takes over the remaining payments. You get a full release from the lease and any personal guarantee.
Option 2: Buy out the lease and include the copier in the sale. Negotiate an early termination with the leasing company, pay the buyout amount, and include the copier as a free-and-clear asset in the business sale. This is often the simplest approach and avoids the complexity of a lease transfer.
Option 3: Terminate the lease separately. If the buyer does not want the copier, negotiate an early termination with the leasing company, return the equipment, and factor the termination cost into your sale expenses. Handle this before closing if possible.
How to Protect Yourself in the Sales Agreement
Your business sales agreement should specifically address the copier lease. Include these provisions: the buyer assumes all lease obligations effective on the closing date, the buyer agrees to obtain a full release of your personal guarantee within 30 days of closing, if the leasing company does not release your guarantee, the buyer indemnifies you against any claims, and the sales price reflects any early termination costs if the lease is being bought out.
Do not rely on verbal agreements about the copier lease. Everything must be in the written sales agreement, or you have no recourse if the buyer stops making payments after closing.
What Most Guides Miss: The Due Diligence Window
Smart buyers review every lease and service agreement during due diligence. They will look at the monthly payment and remaining term, whether the lease is above or below current market rates, the equipment condition and remaining useful life, the service agreement terms and response times, and any pending maintenance issues or unresolved service calls.
If your copier lease is above market rate or the equipment is in poor condition, the buyer will use this as a negotiating point to reduce the purchase price. Before listing your business for sale, evaluate your copier lease and consider whether a buyout or upgrade would make the business more attractive to buyers. A $3,000 lease buyout that removes a $12,000 above-market obligation from the books can actually increase your business’s value. For more on early termination options, see our termination fees guide, and learn about lease transfers at our copier lease transfer guide.
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