Ask Gulf News: Can a factory owner sell the business without the landlord’s consent?

Question: I own a factory that I intend to sell. The premises on which the factory operates are leased, rather than owned by me. Am I entitled to sell the factory without consulting the landlord? If I proceed with the sale, will the purchaser automatically become the new tenant of the leased premises?

Answer: You are generally entitled to sell the factory as an establishment and complete the necessary registration procedures with the relevant Economic Department. But the sale does not automatically entitle the purchaser to become the tenant of the premises. The position will depend on the identity of the lessee under the lease agreement.

If the lease agreement was concluded in your personal capacity, you must notify the landlord because the sale of the factory does not entitle you to transfer the lease agreement to the purchaser or automatically grant the purchaser the right to occupy the premises under the existing lease. 

If the lease agreement was concluded in the name of the factory itself, a change in the ownership of the factory might not affect the existing lease agreement. but this does not prohibit the landlord from initiating legal proceedings seeking termination of the lease. In such circumstances, the court may consider the relevant facts and circumstances, including whether the purchaser has provided sufficient security and whether the proposed transfer would cause any actual harm to the landlord. This is provided in Article (728) of the Civil Transactions Law that “If the lease pertains to a property in which a factory or a shop has been established, and necessity requires the lessee to sell this factory or shop, the court may order the continuation of the lease if the purchaser provides a sufficient security and the lessor suffers no actual harm therefrom.”