COMMERCIAL LEASE/ ISSUES// ASSIGNMENT/ AND TRANSFER OF LEASE

IMPORTANCE OF YOUR LEASE?

A commercial lease is nothing more than a contract for the use of certain described real property, and the improvements found on the property- per certain terms and conditions;

Can you have a brick and mortar presence in any business without a lease agreement?

(no)

More important vis location to some businesses vs others.

Depending upon the type of business you have, location can be everything- restaurants/ bars/ where you are identified with the location- goodwill re the same;

( where your business is located becomes a corner stone to its recognition- its book of business- its saleability to another at some point in time)

QUESTIONS AND ANSWERS—

Q- What do you call it when you transfer a lease agreement from one party to the next?—

So today we will briefly discuss transfers of leases, and some of the pitfalls-

A- An assignment of the lease—

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Q- When someone assigns a lease to you, what has happened legally with regard to that property?

A: The rights and duties pertaining to that property have been assigned—i.e. transferred to you !!!!!!

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Q- Does the landlord generally have to approve an assignment and or transfer of the lease?

A-(yes – see provisions-20.3-a scan doc that will be part of this blog article)

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Q- If a landlord approves the assignment does that allow the transferring party to no longer be responsible under the terms of the lease?

A- ( eg if Marie sells her business , but has personally signed on the lease- and she assigns her lease as part of the sale- is she no longer responsible under the lease?)

A—she will usually still be liable-secondarily liable—

ADDITIONAL FACT (only true way out is to terminate the lease, or have an express release of you from the lease)

See provision 20.5

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Q– Can there be multiple assignments of leases?

_A- YES

Q- What is the legal effect of a lease having been assigned multiple times, with consent but no release, when there is a default on the lease?

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EG-

Q- Simplest type of default? Lack of payment of rent/ triple net expenses etc.

A– All parties in the assignment chain, are liable for the defaulted rent;

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Story about the Laundromat owner, fifth time removed when he defaulted on the rent—suit by the landlord against all of the prior assignees;

Q- who wins?

A- LANDLORD AGAINST ALL PARTIES

Q- Does a landlord have to agree to an assignment?

Depends upon the language?

See example lease provision—20.3

A- Key language you want in your lease—consent- ‘which consent will not be unreasonably withheld’– Assignment needs to be approved and consented to , which consent will not be unreasonably withheld;

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Q- What is unreasonably withholding consent? (usually need a comparable tenant-financial capability largest issue)

Request for information- see- provision- 20.4—

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Q- What is the standard in most commercial leases for consent- A- proposed assignee/ transferee usually must be at least as substantial financially as the party leaving before consent will be granted;

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Q- So, even if consent is granted , a release of the assigning party from the lease, still does not occur without an express release and or termination of that relationship by the landlord and the assigning party;

See provision 20.5—

OTHER ITEMS THAT COME WITH MANY ASSIGNMENTS-

The rent of the assignee is security for your obligations under the lease;

Transfers to 80% or more same ownership; ok- see provis 20.7

(assignments without approval ok)

Changes in entity ownership—ok if 49% or less;

(assignments which are ok-without approval)

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Also, provisions to expect— Other little hooks in the assignment section—

20.9- assignment fee- always at least $500—but this language supported a $2500- fee;

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20.10- And don’t plan on making a profit on your lease when you sell the business – b/c if you do- then 20.10 you will under this lease owe the landlord ½ of your profit;

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So , you can see, how important a lease can be;

And you can see the assignment provisions are one of the most important sections;

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However Caveat, as most 25-40 page leases have many other key provisions that need to be reviewed as well by both you and your legal advisors; we help many clients weave through these challenging lease agreement provisions;

By | 2017-08-07T15:30:28+00:00 October 29th, 2013|