Lease Transfer in Sri Lanka: How Buyers and Sellers Should Handle the Landlord During a Business Sale

Lease issues are one of the most common deal-killers in Sri Lanka.

Many otherwise good business sales collapse not because of price, profit, or buyer interest — but because the lease was misunderstood, ignored, or handled too late.

For retail shops, restaurants, cafés, salons, clinics, factories, and most walk-in or location-dependent businesses, the lease is the business.
Without clarity on the lease, there is no real sale.

This article explains:

• what “lease transfer” actually means in Sri Lanka,

• how landlords typically behave,

• the risks buyers and sellers face,

• when and how the landlord should be approached,

• and how to structure the deal to avoid late-stage surprises.

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Why lease transfer matters so much in Sri Lanka

In many Sri Lankan SME sales:

• the location drives foot traffic,

• rent level determines profitability,

• licences are tied to premises,

• customers associate the business with that address.

Yet many owners assume:

“The buyer can just take over the lease.”

That assumption is often wrong.

A lease is not automatically transferable just because a business is sold.
It is a contractual right, controlled by the landlord.

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First principles: you don’t transfer a business — you transfer rights

When a business is sold, the buyer usually needs:

• the right to occupy the premises,

• on acceptable rent,

• for a sufficient period.

That right comes from the lease, not from the business sale agreement.

Key reality:

• The landlord is not a party to your sale agreement.

• The landlord has independent rights and leverage.

• Ignoring this reality creates risk for both buyer and seller.

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What “lease transfer” can actually mean (three scenarios)

When people say “lease transfer,” they usually mean one of these — often without realising the difference.

Scenario 1: Assignment of the existing lease

• The buyer steps into the seller’s lease.

• Rent, term, and conditions stay the same.

• Almost always requires landlord consent.

When this works well:

• the lease expressly allows assignment,

• landlord is comfortable with the buyer,

• rent is already market-aligned.

When this fails:

• lease prohibits assignment,

• landlord uses consent to renegotiate terms,

• landlord refuses the buyer entirely.

Scenario 2: Termination + new lease

• Seller’s lease ends.

• Buyer signs a fresh lease with the landlord.

• Terms may change.

This is very common in Sri Lanka, especially for:

• retail,

• restaurants,

• high-demand locations.

Implications:

• rent may increase,

• deposit may reset,

• lease term may shorten or change.

Buyers must price this reality in.
Sellers must not promise continuity they cannot control.

Scenario 3: Informal continuation (high risk)

• Buyer “operates temporarily” under seller’s lease.

• Paperwork is postponed.

• Everyone hopes it will be sorted later.

This is extremely risky.

Problems include:

• buyer has no legal occupancy right,

• landlord can terminate,

• seller remains legally liable,

• disputes explode when something goes wrong.

This scenario destroys deals and relationships.

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What most Sri Lankan leases actually say (reality check)

Many Sri Lankan leases include:

• clauses requiring written landlord consent for assignment,

• absolute prohibitions on subletting or transfer,

• rent escalation on “change of control,”

• fresh deposit requirements,

• silent language that still implies landlord discretion.

Key point:

Silence in a lease does not equal permission.

If you haven’t read the lease carefully, you don’t know where you stand.

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Seller-side risks around lease transfer

Sellers often underestimate their exposure.

Common seller risks:

• Promising lease transferability without checking.

• Losing buyer trust late in the process.

• Being forced to renegotiate price or instalments.

• Instalment deals becoming unsafe due to lease uncertainty.

• Remaining legally liable while buyer operates.

A seller who controls expectations early protects:

• the deal,

• their reputation,

• and their exit timeline.

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Buyer-side risks around lease transfer

Buyers face equally serious risks.

Common buyer risks:

• Paying deposits before lease clarity.

• Taking over operations without legal occupancy rights.

• Facing rent increases that destroy profitability.

• Discovering the remaining lease term is too short.

• Being forced to relocate after purchase.

For location-dependent businesses, lease failure often equals business failure.

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Timing mistakes: when lease issues should be addressed

One of the biggest mistakes is timing.

Lease issues should not be addressed:

• after deposit,

• after handover,

• “once things settle.”

Correct timing:

• Before serious price negotiation

• Inside the LOI as a condition precedent

• Before any deposit is paid

Early clarity:

• strengthens negotiation leverage,

• avoids sunk-cost pressure,

• protects instalment structures.

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How buyers and sellers should approach the landlord (practically)

Who should speak to the landlord?

• Seller-led: often best initially, as the landlord already knows the seller.

• Joint approach: effective once buyer is identified and serious.

• Buyer-led alone: risky early, may trigger rent renegotiation too soon.

What tone works best?

Landlords respond to:

• stability,

• continuity,

• professionalism.

Avoid language like:

• “selling out,”

• “exiting urgently,”

• “buyer will experiment.”

Frame it as:

• continuity of operations,

• stable long-term tenant,

• reliable rent.

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What landlords in Sri Lanka usually care about

Landlords are not interested in:

• your sale price,

• your profit multiple,

• your personal reasons.

They usually care about:

• rent being paid on time,

• buyer credibility,

• length of commitment,

• risk reduction,

• property preservation.

Understanding this helps both sides negotiate calmly.

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Rent increases, deposits, and renegotiation reality

After a transfer, landlords may:

• increase rent,

• reset deposits,

• shorten lease terms.

Buyers should:

• factor this into pricing,

• avoid assuming old rent continues.

Sellers should:

• prepare buyers for reality,

• avoid defending unsustainable rents.

Deals fail when rent reality meets denial.

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Lease transfer in asset sale vs share sale

Asset sale

• Most common structure.

• Landlords often insist on:

  • assignment approval, or

  • new lease.

• Informal continuation is dangerous.

Share sale

• Lease may technically stay with the company.

• But landlords may still:

  • object,

  • renegotiate,

  • or impose conditions.

Share sale does not eliminate lease risk.

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Instalment deals and lease risk (critical)

Instalment deals magnify lease risk.

Seller risk:

• Buyer loses lease mid-instalments.

• Business collapses.

• Seller loses remaining payments.

Buyer risk:

• Rent resets destroy cash flow.

• Instalments become unpayable.

Rule:
Lease clarity should come before instalment agreement.

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What should go into the LOI regarding the lease

A strong LOI should include:

• lease as a condition precedent,

• whether assignment or new lease is expected,

• landlord consent timelines,

• what happens if consent is refused.

This protects both sides and prevents emotional renegotiation later.

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Common lease-related mistakes in Sri Lanka

• Assuming “the landlord won’t mind.”

• Relying on verbal assurances.

• Taking over before paperwork.

• Letting buyers operate “temporarily.”

• Ignoring escalation clauses.

• Forgetting lease expiry timelines.

These mistakes are expensive.

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Practical lease transfer checklist

For sellers

• Copy of current lease.

• Assignment clause reviewed.

• Landlord discussion before listing.

• Honest buyer communication.

For buyers

• Lease term remaining.

• Assignment vs new lease path.

• Rent after transfer.

• Deposit requirements.

• Break clauses and escalation.

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When to walk away because of the lease

Sometimes the lease kills the deal — and that’s okay.

Walk away if:

• rent becomes unviable,

• lease term is too short,

• landlord refuses consent,

• conditions change materially.

Walking away early is cheaper than regret later.

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Final thoughts

Lease clarity protects:

• price,

• instalments,

• timelines,

• and peace of mind.

A business sale without lease certainty is not complete — it is conditional.

Handle the landlord early, calmly, and professionally, and most problems disappear before they grow.

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Short practical disclaimer

This article is for general information only and is not legal or tax advice. Always consult a qualified lawyer and/or property professional before transferring or relying on lease rights in Sri Lanka.