If a business is sold, is the new owner obligated to honor existing contracts?

UPDATED: Nov 10, 2011

Advertiser Disclosure

It’s all about you. We want to help you make the right legal decisions.

We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.

UPDATED: Nov 10, 2011Fact Checked

Get Legal Help Today

Compare Quotes From Top Companies and Save

secured lock Secured with SHA-256 Encryption

If a business is sold, is the new owner obligated to honor existing contracts?

I have a day spa that I have for sale. I have contracts with independent contractors, that use my space for massage. Does the new owner have to honor these contracts? The buyer wants to keep all but 2 of the contracts, they state that they want new contracts with these 2 renters for the rent they pay has not been increased to match the newer renters. Each of their contacts will be up in about 9 months.

Asked on November 10, 2011 under Business Law, Washington


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

As a general matter, whether the new owner of a business is bound by pre-existing contracts depends on how the business is sold. If the business is an LLC or a corporation and the new owner buys the LLC or corporation (i.e. buys the actual business structure), he is bound by all contracts. If the new owner however does not buy an LLC or corporation, but "just" buys all the assets (e.g. name, customer list, assets, accounts receivable, etc.) he is only bound by those contracts which he chooses to assume (accept).

It's a little different with leases, however. When somone rents space from another--whether an apartment, a booth, or an office--and that person's landlord sells the property or assigns his own lease (if he is himself a tenant of the property owner), then then new owner will be bound by the leases to the tenants or subtenants. Leases bind the new owner of real estate; subleases will bind somone who took over another's lease.

So if these are actual leases for defined space, the new owner should be bound by  them. So the question is, are these agreements actually leases--renting a certain amount of space from you--or are they just agreements under which someone is free to offer their services in your space, but has no right to some specific area within it. In the former case, the new owner of your space should be bound by them; in the latter case, he'd only be bound if he bought the LLC or corporation or voluntarily chose to assume these contracts.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

Get Legal Help Today

Find the right lawyer for your legal issue.

secured lock Secured with SHA-256 Encryption