I own both the operating business and the commercial building we occupy, and I want to keep the real estate as a personal retirement income stream after I sell. How do we structure our lease agreement on the exit runway to satisfy a buyer while protecting my long-term real estate yield?

Question

Tyler Smith · Accepted Answer

When you own both the operating business and the real estate, you must wear two distinct hats on your exit runway. Buyers want to see clean, normalized operating expenses, which means your business must pay a fair market rent. If you are undercharging rent to make the business look more profitable, or overcharging to extract cash, a buyer's Quality of Earnings audit will normalize the expense anyway, which can disrupt your valuation. To prepare for a clean exit, you must formalize the relationship between your operating company and your real estate holding company. Engage a commercial real estate broker to conduct a local market analysis and establish a fair market rent for your facility. Next, execute a formal, arms-length triple-net lease agreement well before you go to market. This lease should include standard commercial terms, such as a market-rate annual escalation clause, clear maintenance responsibilities, and a reasonable initial term with multiple five-year renewal options. Having this lease in place gives the buyer operational stability and predictability, showing them exactly what their occupancy costs will be post-acquisition. At the same time, it secures your passive personal cash flow, turning your real estate into a stable, long-term retirement asset that is legally insulated from the operating business. Doing this early on your runway prevents awkward negotiations during the transaction.