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When buying a business or selling a business in New York or New Jersey, most people focus on the purchase price. But at closing, additional fees and adjustments often appear — and they can quickly become sticking points. If these costs aren't addressed early in the asset purchase agreement (APA), they can derail an otherwise smooth deal.
This post highlights some of the hidden costs that many first-time buyers and sellers fail to consider when buying or selling a business.
Common Closing Costs to Expect
Lease Assignment Fees
If the business operates from leased premises (as most do), the buyer usually needs the landlord's consent. Most commercial leases require the landlord's legal fees to be reimbursed when reviewing the lease assignment and assumption agreement. This document transfers the lease to the buyer and formalizes the landlord's approval. Most lease will have a flat fee built in for the landlord's legal fees.
UCC Lien and Judgment Search Fees
Before closing, the buyer will want to confirm that the assets are being transferred free and clear. Most often, business assets serve as collateral for loans taken by the seller. To verify clear title, buyers order UCC lien, judgment, and litigation searches through corporate record search companies. The costs are relatively modest, but are worth every penny to guarantee the buyer receives unencumbered assets at closing.
Insurance Premiums
At closing, the buyer must have insurance in place — usually general liability and premises coverage. Depending on the business type, this can be a significant upfront expense. Parties should talk to their insurance broker early and often.
Franchise Transfer Fees
If the business is part of a franchise system, franchisors often charge a transfer fee when ownership changes. The APA should make clear whether the buyer or seller will cover this cost.
Who Pays? It's Negotiated
None of these fees should be assumed. To prevent the deal from stalling later on, the APA should clearly state whether the buyer or seller is responsible. It should also specify responsibility for lien searches, insurance, and franchise transfer fees. If the agreement is silent, disputes can arise late in the process.
Extra Adjustments Made at Closing
Signing the asset purchase agreement is not the end of the process. When the parties arrive at closing, there are often extra financial adjustments. Ideally, these adjustments come after completing the bulk sales process. These adjustments can catch both buyers and sellers off guard if they haven't been discussed in advance:
- Rent and Utilities: If closing occurs mid-month, the seller typically gets a prorated credit for rent or utilities already paid.
- Customer Credits: If the seller has already been paid by customers, the buyer will expect a corresponding credit. This applies to payments through gift cards or prepaid services. Otherwise, the buyer may have to honor those obligations without reimbursement.
- Inventory: If inventory is not included in the purchase price, the buyer must pay for what's on hand at closing. This can be a significant expense. Restaurants often keep large inventories on hand. Manufacturing businesses do the same to keep operations running smoothly. This is especially true for their sale.
- Cash on Premises: In cash-heavy businesses (such as laundromats), the seller usually expects payment for coins or currency in the machines. This ensures a seamless handoff to the buyer. Parties often meet the night before closing to count the cash, then record the exact amount on the closing statement.
Why This Matters
Unexpected closing costs and adjustments can create unnecessary conflict. A buyer may feel blindsided, and a seller may feel shortchanged. The solution is simple: identify and negotiate these issues early in the APA to prevent last-minute disputes.
Take Action Now
Whether you are buying a business or selling a business in New York or New Jersey, don't wait until closing to talk about costs. Review fee allocation early in the process with your corporate lawyer. That way, both parties walk into closing knowing exactly what to expect — and avoid surprises that can stall or sink the deal.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
