A lot of small businesses rent their building from an LLC the owner also controls. It's common and perfectly fine, but it changes the earnings picture more than people expect.
If the owner has been charging the business below-market rent, EBITDA looks better than it will be after closing, once the new lease is signed at a real rate. If the rent has been above market (sometimes done for tax reasons), the seller will often ask to add the difference back.
A few things I'd check early:- What the current rent is versus a broker's opinion of market rent for that space- Whether there's a written lease at all, and what the new lease after closing will actually say (term, rate, renewals, who pays taxes and repairs)- Whether the add-back in the CIM matches the new lease, not just the old arrangement
Lenders will usually want to see the new lease anyway, and they'll underwrite the deal on that rent. Better to rebuild EBITDA on that number before the LOI than to find out during underwriting.
Has anyone negotiated a lease with a seller-landlord that changed the price, and how did you get to a market number you both accepted?