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What happens if the tenant assigns the lease to a weaker credit halfway through the term

Sitting on a deal right now where this is the thing I can't get comfortable with. Single-tenant QSR pad, 8 years of term left, operator is a 34-location franchisee with financials I can actually read. The assignment clause lets them transfer to any entity that takes over "substantially all" of the locations, with landlord consent not to be unreasonably withheld. Broker says that language is standard and I shouldn't worry about it. I've heard that before on other deals and I don't love it as an answer.

The scenario I keep running: franchisee sells 20 of the 34 stores to a smaller operator, the remaining 14 roll into a new LLC, and that LLC is who I'm now collecting from. Nothing in the lease trips automatically. I'd have to argue unreasonable consent was withheld, which is a lawsuit, not a phone call. My attorney flagged this but said it's hard to negotiate out of on a deal this size because the seller won't want to set a precedent across their portfolio.

Asking price is $1.38M at a 6.5 cap. Denver suburb, good corner, strong QSR brand at the top. The box itself is probably fine long-term. It's the credit exposure mid-lease that I can't fully price. Anyone actually dealt with an assignment mid-hold and what did it look like on the other end.

1 reply

Denver suburbs I know a bit, that market has held QSR pads pretty firm even through the rate moves, so the real estate under it is probably not your problem.

The assignment scenario you're running is the right one to stress, but the number that matters is what the 14-location LLC looks like on paper, not the 34. If the franchisee is already thin at 34 stores, a 14-store successor entity could be functionally uncollectable and you'd own a dark box with 6 years left on a lease nobody wants to enforce.

6.5 feels light for that unpriced optionality at $1.38M in the current rate environment, and I'd want either a meaningful price cut or a consent standard with a net worth floor written in before I moved capital here.

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