We own the commercial real estate our operating business occupies under a separate property holding company. How do we structure the lease agreement on our exit runway to guarantee we secure long-term passive income post-sale without turning off potential buyers?

Question

Tyler Smith · Accepted Answer

Retaining the real estate is an excellent way to transition from active business owner to passive landlord, but it requires careful structuring. Buyers are highly sensitive to real estate arrangements because they represent fixed operational costs. If your lease is structured above market rates or lacks clear terms, it will raise red flags during financial due diligence.

You must formalize a market-rate, triple-net lease between your operating company and your real estate holding entity at least two years before you go to market. Hire an independent commercial real estate broker to conduct a local market rent study. This ensures the rent you charge your operating company is defensible and matches fair market value.

The lease term should ideally be a five to ten-year initial term with multiple five-year renewal options. This gives the buyer operational stability and predictability, which they appreciate. Avoid inserting landlord-friendly clauses that are outside industry norms, such as excessive rent escalations or restrictive access rights. By presenting a clean, arms-length, market-standard lease, you secure a reliable passive income stream post-exit while assuring the buyer that their occupancy costs are locked in and reasonable.