Equipment and Real Property in Manufacturing M&A: Leases, Titles, and Transfers

Q: Do equipment leases always transfer?

Equipment leases do not transfer automatically in an acquisition. Most equipment lease agreements contain anti-assignment clauses that require the lessor's prior written consent to assign the lease to a new lessee. In an asset purchase, the buyer is attempting to step into the seller's position as lessee under each equipment lease, which is a change in the contracting party that triggers the anti-assignment clause in most lease agreements. The buyer must identify each equipment lease early in due diligence, review the anti-assignment and change-of-control provisions, and determine whether the lessor's consent is required. In a stock purchase, the legal entity that is the lessee does not change (only its ownership does), so assignment restrictions typically do not apply unless the lease contains a change-of-control provision. Whether anti-assignment restrictions apply, and how to obtain consent from lessors, is a key operational due diligence task in every manufacturing acquisition involving leased equipment.

Q: What is a UCC search?

A UCC (Uniform Commercial Code) search is a search of state and local filing records to identify security interests that have been filed against a debtor's personal property, including equipment. Under Article 9 of the UCC, lenders and lessors who have a security interest in equipment must file a financing statement (UCC-1) with the appropriate state filing office to perfect their security interest against third parties, including subsequent buyers. A UCC search against the seller reveals all filed financing statements showing security interests in the seller's personal property, which may include specific equipment items or all-asset blanket liens. In an asset purchase, the buyer must confirm that all UCC liens on equipment to be acquired are either released at closing or assumed with the consent of the secured party. Buying equipment subject to an undisclosed UCC lien exposes the buyer to the secured party's claim to the equipment after closing.

Q: Does the buyer get the landlord's consent?

Whether the buyer needs the landlord's consent depends on the deal structure and the terms of the lease. In an asset purchase, the buyer is not a party to the existing lease and must obtain an assignment of the lease from the seller, which almost always requires landlord consent under the lease's assignment clause. In a stock purchase, the legal entity that is the tenant does not change, so the assignment restriction in the lease is not triggered unless the lease contains a change-of-control clause. For manufacturing acquisitions structured as asset purchases, landlord consent is typically a required closing condition when the facility is leased: the buyer cannot operate at the facility without a lease, and the seller cannot assign the lease without the landlord's consent. Landlords sometimes use the consent process as an opportunity to negotiate lease modifications, particularly rent adjustments or removal of favorable terms the original tenant negotiated. Buyers should budget time and potentially cost for the landlord consent negotiation.

Q: Who pays personal property tax in the year of transfer?

Personal property tax responsibility in the year of transfer is typically governed by the purchase agreement's prorations and adjustments provisions, not by statute. Most states assess personal property tax as of a specific assessment date, often January 1 of the tax year. If the acquisition closes after the assessment date but before the tax bill is due, the tax technically accrued during the seller's ownership period but may not have been paid yet. Standard purchase agreement practice is to prorate personal property taxes: the seller is responsible for the portion of the year's tax attributable to its ownership period, and the buyer is responsible for the remainder. If the acquisition closes before the assessment date of the new tax year, the buyer will own the property on the assessment date and will be responsible for the full year's tax. Buyers should confirm the applicable state's assessment date, confirm what the prior year's personal property tax was, and ensure the purchase agreement's proration mechanics address personal property tax specifically.

Q: What is a novation vs assignment?

An assignment and a novation are two different mechanisms for transferring contractual rights and obligations. In an assignment, the original party (the assignor) transfers its rights under a contract to a new party (the assignee), but the assignor typically remains liable to the other contracting party unless the other party agrees to release it. In a novation, the original party is fully released from the contract and replaced by a new party, with the consent of all three parties: the original party, the new party, and the counterparty. For equipment leases in manufacturing acquisitions, the distinction matters because an assignment without the lessor's consent may be prohibited by the anti-assignment clause; an assignment with the lessor's consent releases the seller from the lease but may require the seller to remain liable as guarantor unless a full novation is obtained. A novation substitutes the buyer as the sole lessee and releases the seller entirely. Buyers should negotiate for novation of key equipment leases rather than assignment where possible, to avoid the seller remaining as a contingent liability on the lease.

A manufacturing acquisition without clean hard asset transfers is not a completed transaction. The production equipment, tooling, fixtures, and facilities that define the business's operating capacity must transfer to the buyer in a legally clean condition: free of undisclosed liens, with valid lease assignments or novations in place, with landlord consents obtained, and with warranties and service contracts transferred where possible. Each of these elements involves a distinct legal framework and a distinct set of counterparties whose consent or cooperation may be required.

Manufacturing companies typically have complex hard asset profiles: a mix of owned equipment (some financed, some paid off), leased equipment from multiple lessors, real property that may be owned or leased (or both), and a category of items sitting between equipment and real property that creates classification disputes at closing. Understanding how each category is treated under the applicable legal frameworks is essential to structuring a manufacturing acquisition that actually delivers what the buyer expects.

This guide is part of the Manufacturing M&A Legal Guide. It covers the complete framework for hard asset diligence and transfer in manufacturing acquisitions: owned equipment title and liens, equipment lease assignment mechanics, real property diligence and landlord consent, fixture classification, UCC searches, personal property tax, and equipment warranty transfers.

Buyers evaluating the overall transaction structure should review the asset purchase vs stock purchase guide and the asset purchase agreement guide. Hard asset transfer mechanics are particularly consequential in asset purchases, where each asset must be specifically identified, lien-cleared, and transferred by appropriate legal instrument.

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Hard Assets as the Core of Manufacturing Value

Manufacturing businesses derive their value from the ability to produce goods at a defined quality, volume, and cost. That ability is embedded in physical assets: the production equipment, tooling, fixtures, dies, molds, and patterns that perform the work; the facilities that house them; and the utilities, infrastructure, and support equipment that enable production to run. Unlike service businesses, where value travels with people, or technology businesses, where value resides in software and IP, manufacturing businesses carry their value in hard assets that must be transferred physically and legally.

The hard asset profile of a manufacturing company is rarely simple. Equipment may be owned outright, financed with liens that must be released, or leased from third-party lessors whose consent is required to transfer the leases. The facility may be owned and subject to a title search and survey, or leased under a long-term lease with assignment restrictions and landlord consent requirements. Some items sit in an uncertain middle ground between personal property and real property: large presses bolted to concrete, overhead cranes attached to building structures, conveyor systems integrated into the facility layout.

Hard Asset Categories in Manufacturing Acquisitions

Owned equipment (unencumbered): Transfers by bill of sale. UCC search confirms no security interests. Title passes at closing with seller's warranty of title.

Owned equipment (financed): Requires UCC lien release at or before closing. Seller's lender must be paid off and lien terminated. Buyer should confirm UCC termination statement is filed before closing.

Leased equipment: Requires identification of all leases, review of anti-assignment provisions, and lessor consent (in asset purchase) or change-of-control review (in stock purchase). Each lease must be assigned or novated to the buyer.

Owned real property: Requires title search, survey, zoning review, and deed transfer at closing. Environmental diligence is a parallel workstream. Title insurance is typically required by lenders.

Leased real property: Requires lease assignment with landlord consent. Buyer must review lease terms, renewal options, rent escalation provisions, and any landlord improvement obligations before closing.

Owned Equipment: Title Search and Liens

For equipment that the seller owns outright (or claims to own outright), the buyer's primary diligence task is confirming clean title: that the seller actually holds ownership, that no third parties have security interests or liens in the equipment, and that the transfer at closing will deliver unencumbered ownership to the buyer. This analysis is carried out primarily through UCC searches and review of the seller's equipment acquisition records.

Sellers of manufacturing businesses often carry equipment that was financed and is subject to outstanding UCC security interests, even for equipment that appears on the balance sheet as owned. Equipment purchased through installment sale contracts, equipment financing agreements, or revolving lines of credit secured by equipment will have UCC-1 financing statements filed against the seller by the respective lenders. A seller may have paid off a loan but the lender may not have filed a UCC-3 termination statement, leaving a "zombie" lien on the record. Both active and terminated-but-still-visible liens require review.

All-asset blanket liens: Many lenders take a blanket security interest in "all assets" of the borrower, including equipment. A blanket lien from a working capital lender may technically cover specific equipment even though the loan has nothing to do with that equipment. In an asset purchase, blanket liens must be released as to the specific assets being transferred, or terminated entirely, before the buyer takes title. The seller's lender must execute a partial release or termination, and the buyer should confirm the appropriate UCC filing is made at or before closing.

Equipment-specific financing statements: Equipment purchased under specific financing arrangements (capital leases that are structured as security interests, equipment term loans) will have UCC-1 financing statements identifying the specific equipment by description, serial number, or schedule. These must be reviewed to confirm which equipment items are subject to the filing and what payoff is required to release them. Buyers should require that payoff letters and lien release commitments be obtained from all equipment lenders as conditions to closing.

Searching the right jurisdictions: UCC searches must be run in the correct jurisdiction to be reliable. Under current UCC Article 9 rules, the proper place to file a financing statement for personal property is the state in which the debtor is organized (for entities) or the state of the debtor's principal residence (for individuals). Buyers should run UCC searches in the seller's state of organization, and in any other state where the seller has historically operated, to ensure comprehensive coverage of filed security interests.

Equipment Leases: Assignment vs Novation

Equipment leases are a common feature of manufacturing companies. Lessors who provide production equipment, lift trucks, compressors, CNC machines, and other capital items under operating or finance leases retain title to the equipment and have the contractual right to approve or deny any assignment of the lease. In an asset purchase of a manufacturing business, the buyer must obtain the right to use all critical leased equipment going forward, which requires either an assignment of the existing lease or a novation that substitutes the buyer as the new lessee.

An assignment transfers the seller's leasehold rights to the buyer but does not automatically release the seller from its lease obligations. Unless the lessor expressly agrees to release the seller, the seller remains potentially liable as a guarantor if the buyer defaults on the lease. For a seller who is closing its operations and has no ongoing business, residual liability on assigned equipment leases is a material concern that the purchase agreement should address through indemnification.

A novation is a complete substitution: the lessor releases the seller from all lease obligations and the buyer steps in as the new lessee under identical (or modified) terms. Novations require the lessor's affirmative consent and cooperation. Not all lessors will agree to a novation without a creditworthiness review of the new lessee, which may involve the buyer providing financial statements, references, or a deposit. For lessors of major equipment, the novation process can take several weeks and should be initiated early in the deal timeline.

Equipment lease inventory: Many manufacturing companies do not have a centralized equipment lease schedule. Leases may be scattered across finance department files, operations records, and individual department budgets. Buyers should request a complete equipment lease schedule from the seller early in diligence and verify it against the seller's general ledger and accounts payable records for lease payment obligations. Missing a material equipment lease until late in the process can delay closing or leave the buyer without a valid right to use equipment it assumed was included in the deal.

Capital Lease vs Operating Lease Treatment

The accounting treatment of equipment leases as capital leases or operating leases affects how the liability appears (or does not appear) on the seller's balance sheet, which in turn affects the buyer's financial diligence. Under current accounting standards (ASC 842), most leases must be recorded on the lessee's balance sheet as a right-of-use asset and a corresponding lease liability. Before ASC 842, operating leases were off-balance-sheet obligations that did not appear as liabilities, which meant buyers doing financial diligence on older financial statements needed to specifically investigate and quantify lease obligations that were not visible in the balance sheet.

From a legal structuring standpoint, the capital lease vs operating lease distinction matters because capital leases (or finance leases under ASC 842 terminology) are structured as security agreements: the lessor retains a security interest in the equipment, and a UCC-1 financing statement is typically filed. Operating leases are true leases where the lessor retains ownership and the lessee has only a contractual right to use the equipment. The transfer mechanics differ: a capital lease security interest must be released (like any other UCC lien) while an operating lease must be assigned or novated.

Sale-Leaseback Arrangements at Acquisition

A sale-leaseback is a transaction structure in which an owner of an asset sells it to a buyer and simultaneously leases it back from the buyer for a defined term. In the context of manufacturing acquisitions, sale-leasebacks are used for both equipment and real property, and they serve different purposes depending on which asset is involved.

For real property, a sale-leaseback at acquisition typically involves the buyer acquiring the manufacturing business and then selling the facility to a real estate investor, who leases the facility back to the buyer on a long-term basis. This structure allows the buyer to acquire the operating business without permanently tying up capital in real estate. The buyer effectively converts the facility from a capital asset on its balance sheet to an operating lease obligation. Sale-leasebacks of manufacturing real estate are most common where the facility has significant independent real estate value and the buyer's primary interest is in the operating business rather than the real estate.

For equipment, a sale-leaseback allows the buyer to acquire the equipment as part of the business acquisition and then sell it to an equipment finance company, which leases it back. This frees up capital that the buyer deployed at closing to acquire the equipment, converting it into an ongoing operating lease payment. Equipment sale-leasebacks are most attractive when the equipment has strong residual value, the buyer has attractive lease terms available from equipment finance providers, and the buyer prefers operating expense over capital allocation.

Sale-Leaseback Considerations for Manufacturing Buyers

Real estate value assessment: Sale-leaseback economics depend on an accurate appraisal of the facility's market value. Industrial real estate values have varied significantly by region and have been affected by demand from logistics users. A formal MAI appraisal is typically required by the real estate investor.

Lease term and rent: The long-term cost of a sale-leaseback depends on the initial rent and escalation provisions. A below-market rent with favorable escalation terms is more attractive than a market-rate rent with uncapped escalation. Buyers should model the full lease cost over the anticipated holding period.

Operational control: Sale-leaseback leases typically include restrictions on modifications, improvements, and changes of use. Manufacturing tenants who need flexibility to reconfigure facilities or add equipment may find that standard NNN lease terms limit their operational flexibility.

Owned Real Property Diligence (Title, Survey, Zoning)

When the manufacturing facility is owned real property, the buyer's real estate diligence involves a title search, a survey, and a zoning and land use review. These workstreams are conducted in parallel with environmental diligence, equipment diligence, and commercial due diligence, and they sit on the closing critical path because title insurance commitments, survey certifications, and zoning compliance letters each have their own lead times.

A title search reviews the chain of title for the real property to identify any defects, encumbrances, or claims that could affect the buyer's ownership after closing. The title search covers deeds, mortgages, mechanic's liens, easements, covenants, and other recorded documents in the county real estate records. Title insurance is issued by a title company based on the results of the title search and protects the buyer (and lender, under a separate lender's policy) against losses arising from defects in title that the search did not reveal.

A survey delineates the property boundaries, identifies improvements on the property (buildings, parking, fences, utilities), and discloses any encroachments by or onto the property. Manufacturing facilities often have complex site configurations with multiple buildings, yards, access roads, rail spurs, and utility easements. A current survey is required by most title insurers as a condition to insuring over survey-related exceptions, and it provides the buyer with a definitive understanding of exactly what real property is included in the acquisition.

Zoning compliance: The facility must be zoned for the manufacturing use the buyer intends to conduct. A buyer planning to continue existing operations generally wants to confirm that the current use is a conforming use under the applicable zoning classification. A buyer planning to expand or change operations should confirm that the intended use is permitted as of right or by special use permit. Non-conforming uses (grandfathered uses that predate current zoning requirements) may be subject to restrictions on expansion and may terminate if the use is discontinued for a specified period.

Easements and encumbrances: Manufacturing properties frequently have utility easements (for power lines, pipelines, and communications infrastructure), access easements, and shared infrastructure agreements with neighboring properties. The title search will identify recorded easements, but buyers should also review any unrecorded arrangements disclosed by the seller or observed during site visits. Easements that limit the use of portions of the property or restrict building expansion can affect the buyer's development plans.

Real property mortgages: Any mortgage or deed of trust securing a loan against the property must be paid off and released at closing. The title commitment will identify outstanding mortgages. The seller's lenders must provide payoff letters, and the buyer (or the closing agent) must confirm that payoff funds are disbursed at closing and that the lender files a mortgage release or satisfaction in the appropriate real estate records.

Leased Facility: Landlord Consent and Assignment

When the manufacturing facility is leased rather than owned, the buyer's primary real estate task is obtaining a valid assignment of the lease or entering into a new lease at the facility. In an asset purchase, the seller's lease cannot be transferred to the buyer without landlord consent unless the lease specifically permits assignment without consent (which is uncommon in commercial industrial leases). The landlord consent process is a critical path item that can delay or complicate closing if not started early.

The lease assignment process typically begins with the buyer and seller jointly approaching the landlord with a consent request. The landlord will review the buyer's creditworthiness, business plan, and proposed use of the facility. Landlords of industrial properties often have reasonable concerns about whether the new tenant can maintain the same level of operations and meet lease financial obligations. For buyers who are smaller or less creditworthy than the seller, landlords may require additional security (personal guarantees, security deposits, or letters of credit) as a condition to consent.

Lease modification risk: Landlords who receive an assignment consent request have leverage to negotiate modifications to the existing lease. Common modifications sought by landlords include rent increases to market rates, removal of below-market renewal options the original tenant negotiated, reduced tenant improvement allowances for future periods, and changes to permitted use provisions. Buyers should review the existing lease carefully before approaching the landlord and should anticipate that the consent negotiation may involve trade-offs on lease terms that affect the economics of the transaction.

Rent Escalation and Renewal Options

The financial terms of the facility lease are as important to the manufacturing acquisition's economics as the purchase price itself. For a manufacturer operating in a leased facility, the rent obligation runs for the full term of the lease and is a significant component of the facility's operating cost structure. Buyers who inherit a favorable lease (below-market rent, long remaining term, favorable renewal options) are acquiring an off-balance-sheet asset. Buyers who inherit an unfavorable lease (above-market rent, short remaining term, no renewal options) are acquiring a liability that affects the business's long-term operating flexibility.

Rent escalation provisions determine how rent changes over the lease term. Common escalation structures include fixed annual percentage increases, CPI-linked escalations, and periodic market rent resets. For long-term industrial leases, uncapped CPI escalation can result in significant rent increases over a multi-decade term if inflation runs above historical averages. Fixed annual escalation provisions provide more predictability but may over- or undershoot market rent over time.

Renewal options give the tenant the right to extend the lease for a defined period at a defined rent (or at a rent determined by a specified formula). A manufacturing facility tenant who needs long-term location certainty places significant value on renewal options. Buyers should confirm that renewal options in the existing lease will survive the assignment and remain available to them as the new tenant. Some leases provide that renewal options are personal to the original tenant and do not survive assignment.

Fixtures vs Equipment: Classification Disputes

The classification of an item as a fixture or personal property determines which legal framework governs its transfer. Personal property transfers by bill of sale and is subject to UCC Article 9 for security interest purposes. Real property (including fixtures attached to real property) transfers by deed and is subject to real property title law. When the two classifications overlap, disputes arise about what the seller intended to transfer, what the buyer believed it was acquiring, and what the landlord has the right to retain when a leased facility is vacated.

Under general property law, an item becomes a fixture when it is annexed to real property in a manner that objectively indicates a permanent intent to make it part of the real estate. The test involves three factors: actual physical annexation to the real estate; the item's adaptation to the use of the real estate; and the intent of the party who attached it, as objectively manifested by the circumstances. In manufacturing contexts, large production equipment that has been bolted to concrete foundations, electrical and pneumatic systems that have been permanently wired into the building, and overhead crane structures attached to the building's steel are candidates for fixture classification.

Preventing Fixture Disputes in Manufacturing Acquisitions

✓Walk the facility with the seller before signing and create a detailed equipment schedule that specifically identifies items whose classification may be disputed
✓Address fixture classification explicitly in the purchase agreement: define which items are included as real property and which as personal property
✓For leased facilities, review the lease's definition of fixtures and any provision addressing the tenant's right to remove trade fixtures at the end of the term
✓Run fixture filing searches in the real estate records alongside UCC personal property searches to identify any security interests filed as fixture filings
✓For high-value items whose classification is genuinely uncertain, consider obtaining a legal opinion or including both real property and personal property transfer mechanisms in the closing documents

Structuring Hard Asset Transfers in a Manufacturing Acquisition?

Alex Lubyansky works with manufacturing buyers on equipment lease assignments, UCC lien clearance, real property diligence, fixture classification, and asset purchase closing mechanics. Submit your transaction details for an engagement assessment.

UCC Searches for Equipment Liens

A comprehensive UCC search is a non-negotiable step in manufacturing acquisition due diligence. UCC searches reveal all financing statements filed against the seller, identifying every party who has filed a security interest in the seller's personal property (including equipment) and has not yet filed a termination statement. In an asset purchase, the buyer is acquiring specific assets and needs to confirm that each asset is free of security interests at closing, or that appropriate releases are in place.

The search should be run against the seller's legal name and any trade names or prior names the seller has used. UCC Article 9 requires financing statements to be filed under the debtor's exact legal name; minor name variations can cause a financing statement to be seriously misleading and ineffective, but buyers should nonetheless search variations to be thorough. Searches should be run in the seller's state of organization (for entities) and in any state where the seller has been organized historically.

After the UCC search results are reviewed, the buyer should prepare a lien release schedule that lists each financing statement to be terminated or released before or at closing, identifies the secured party, and tracks the status of payoff letters and UCC termination filings. The closing mechanics should require confirmation that all scheduled lien releases have been filed before or simultaneously with the closing transfers. A buyer who closes without confirmed lien releases acquires equipment subject to the secured party's prior security interest.

Personal Property Tax Obligations at Transfer

Personal property tax is an often-overlooked element of manufacturing acquisition closing economics. Most states with a personal property tax assess it as of a specific date each year (January 1 in many states), based on the value of tangible personal property owned by the taxpayer on that date. Manufacturing companies with significant equipment inventories can carry substantial personal property tax obligations. The buyer and seller need to address how this obligation is allocated at closing.

The standard approach is proration: the personal property tax for the tax year in which the closing occurs is allocated between the seller (for the period from January 1 to the closing date) and the buyer (for the period from the closing date to December 31). If the tax bill has been issued before closing, the proration is calculated based on the actual bill. If the tax bill has not yet been issued, the proration is typically estimated based on the prior year's tax and trued up when the actual bill is received.

Transfer-triggered assessment: Some states treat the sale of personal property as a triggering event for reassessment of the transferred property's value. A buyer who acquires equipment at a price significantly higher than the seller's assessed value may receive a higher personal property tax assessment in the subsequent tax year. Buyers should review the applicable state's personal property tax assessment methodology and model potential changes in annual personal property tax obligation as part of their post-close financial analysis.

Equipment Warranties and Service Contracts Transfer

Equipment warranties and service contracts represent ongoing commitments from equipment manufacturers and third-party service providers to maintain, repair, or replace equipment. Their transferability in a manufacturing acquisition depends on the specific terms of each warranty and service agreement, and varies significantly across different types of equipment and providers.

Original equipment manufacturer (OEM) warranties are typically issued to the original purchaser. Many OEM warranties contain non-transferability provisions that terminate the warranty when the equipment is sold. Others permit transfer with notice to the manufacturer and payment of a transfer fee. For equipment with significant remaining warranty terms, the buyer should request copies of all warranties, review the transfer provisions, and initiate the transfer process before closing for those warranties that are transferable.

Extended service contracts and preventive maintenance agreements with third-party providers are typically assignable with the provider's consent. Providers of service contracts for industrial equipment generally prefer continuity of the service relationship and are willing to accept the buyer as the new contract party. The buyer should review the terms of each service contract, confirm whether consent is required, and initiate consent requests before closing.

Warranty gap analysis: When material equipment warranties will terminate at closing and are not transferable, the buyer faces an uninsured maintenance risk period until the buyer can establish its own service relationships. Buyers should identify any equipment with significant remaining warranty terms that will be lost at closing and factor the cost of alternative service coverage into their financial analysis.

Implied warranties in the purchase agreement: Beyond OEM warranties, the asset purchase agreement can include seller representations and warranties about the condition of the equipment being transferred. Standard representations include that the equipment is in good operating condition and repair (ordinary wear and tear excepted) and that no material capital expenditures are required to maintain the equipment in current operating condition. Buyers should negotiate appropriate equipment condition representations and an indemnity period that provides recourse if undisclosed equipment issues emerge shortly after closing.

Software licenses embedded in equipment: Modern manufacturing equipment often runs proprietary software licensed by the OEM. The license to use that software may be personal to the original purchaser and may require the OEM's consent to transfer to a new owner. CNC machines, robotics, and advanced production equipment commonly embed licensed software that must be transferred or re-licensed at closing. Buyers should inventory software licenses associated with material equipment and address transfer or re-licensing requirements as part of the closing checklist.

Acquiring a Manufacturing Business and Need Hard Asset Transfer Counsel?

Acquisition Stars works with manufacturing buyers on equipment diligence, UCC lien clearance, lease assignment mechanics, real property title review, fixture classification, and asset purchase closing documentation. Alex Lubyansky handles each engagement directly. Submit your transaction details to begin the engagement assessment process.

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Frequently Asked Questions

Do equipment leases always transfer?

Equipment leases do not transfer automatically. Most lease agreements contain anti-assignment clauses requiring the lessor's prior written consent to assign the lease to a new lessee. In an asset purchase, the buyer must identify each equipment lease, review anti-assignment and change-of-control provisions, and obtain the lessor's consent before the lease can be transferred. In a stock purchase, the legal entity that is the lessee does not change, so assignment restrictions typically do not apply unless the lease contains a change-of-control provision. Failing to obtain required lessor consents leaves the buyer operating equipment without a valid lease agreement after closing.

What is a UCC search?

A UCC search is a search of state filing records to identify security interests filed against a debtor's personal property, including equipment. Under Article 9 of the UCC, lenders and lessors with security interests in equipment must file a UCC-1 financing statement to perfect their interest against third parties, including subsequent buyers. A UCC search against the seller reveals all filed security interests in the seller's personal property. In an asset purchase, buyers must confirm that all UCC liens on equipment to be acquired are released at closing or assumed with the secured party's consent. Buying equipment subject to an undisclosed UCC lien exposes the buyer to the secured party's claim to that equipment after closing.

Does the buyer get the landlord's consent?

In an asset purchase of a manufacturing business with a leased facility, landlord consent is typically required to assign the lease to the buyer. Most commercial industrial leases contain anti-assignment provisions requiring landlord consent before the lease can be transferred. The landlord will review the buyer's creditworthiness and may require additional security as a condition to consent. Landlords may also seek lease modifications as part of the consent negotiation. The landlord consent process sits on the closing critical path and should be initiated early. In a stock purchase, the legal entity that is the tenant does not change, so assignment restrictions are not triggered unless the lease contains a change-of-control provision.

What is a fixture filing?

A fixture filing is a UCC financing statement recorded in the real estate records (rather than the central UCC filing office) that perfects a security interest in goods that have become fixtures attached to real property. A creditor who wants to ensure its security interest in fixtures is enforceable against subsequent real property purchasers or mortgagees must file a fixture filing in the county real estate records. In manufacturing acquisitions, fixture filings can reveal security interests in equipment installed in the facility as fixtures, such as presses bolted to concrete floors or permanently installed conveyor systems. Both UCC personal property searches and real estate records searches should be conducted to identify all security interests in the acquisition's hard assets.

Can sale-leaseback work at acquisition?

A sale-leaseback can work at acquisition and is used in some manufacturing transactions as a financing or deal structure tool. For real property, the buyer acquires the business and simultaneously sells the facility to a real estate investor who leases it back, freeing capital for operations. For equipment, the buyer acquires equipment as part of the transaction and sells it to an equipment finance company that leases it back, converting a capital outlay into an operating lease. Sale-leaseback economics depend on the lease rate accepted relative to the asset's value, and on whether the buyer values balance sheet flexibility or long-term asset ownership more highly.

Who pays personal property tax in the year of transfer?

Personal property tax allocation in the year of transfer is governed by the purchase agreement's proration provisions. Most states assess personal property tax as of January 1 of the tax year. Standard practice is proration: the seller is responsible for the portion of the year's tax attributable to its pre-closing ownership period, and the buyer is responsible for the remainder. If the tax bill has been issued, proration is based on the actual amount. If not yet issued, it is estimated based on the prior year's tax and trued up when the bill arrives. Buyers should review the applicable state's assessment date and model post-close personal property tax obligations based on the acquisition price of the transferred equipment.

What is a novation vs assignment?

An assignment transfers contractual rights to a new party but may leave the original party liable as a guarantor unless expressly released. A novation substitutes a new party completely, releasing the original party from all obligations, with the consent of all three parties: the original party, the new party, and the counterparty. For equipment leases, an assignment with lessor consent transfers the lease to the buyer but the seller may remain contingently liable if the buyer defaults. A novation releases the seller entirely and makes the buyer the sole lessee. Buyers should negotiate for novation of key equipment leases rather than mere assignment where possible, to avoid leaving the seller as a contingent guarantor with indemnification claims against the buyer.

Are equipment warranties transferable?

Whether equipment warranties are transferable depends on the terms of each warranty. Many OEM warranties are issued to the original purchaser and are non-transferable: they terminate when the equipment is sold. Some OEM warranties permit transfer with notice and payment of a transfer fee. Extended service contracts and third-party maintenance agreements have their own transfer provisions that vary by provider. Buyers should inventory all material equipment warranties and service contracts, review transfer provisions, and initiate the transfer process before closing for those that are transferable. Non-transferable warranties on critical production equipment may affect post-close maintenance cost assumptions and should be factored into the financial analysis.

Complete the Manufacturing M&A Framework

Hard asset diligence and transfer is one component of the broader manufacturing M&A legal framework. Review the related guides for the complete picture.

Manufacturing M&A Legal Guide: Complete Overview Environmental Diligence in Manufacturing Acquisitions Union CBAs and Successorship in M&A Asset Purchase vs Stock Purchase Asset Purchase Agreement Guide M&A Due Diligence Guide M&A Deal Structures