Commercial lease question

Discussion in 'Legal Issues' started by Truly Exotic, 10th Feb, 2017.

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  1. Truly Exotic

    Truly Exotic Well-Known Member

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    This question may be for Terry_w.

    A lifetime ago. I signed my one and only commercial lease. It was a shopping centre lease which we all know are pretty unfair. And I sold the business to someone in the second year for various reasons.

    Anyway. I was just reflecting on what happened. In a interesting time of my life

    In a nutshell.
    I reassigned the lease year 2 of 7×7x7 lease

    There was a clause in it that was poorly worded which in essence said if the premises is abandoned or something or rather then I would have to give back a huge chunk of money they had contributed.

    Anyway after engaging a lawyer I reassigned the lease and didn't have to pay back anything although it cost me legal fees.

    The two arguments we used were

    1. Abandoned means left suddenly and empty. We are reassingng the lease so not abandoning.

    2. (my idea that I'm proud of) my company was owned solely by me as a director with no assets that was used to run the business with no loans. If they refused to allow me to reassign. I would simply give all my shares to the new owner. And essentially the same company would still be on the lease and legally they couldn't do anything.

    This above point. My lawyer was pretty impressed that someone without a law background came up with

    However do the above sort of strategies ever used?

    I also was watching suits and they did something similar!

    Quite fascinating how thst kind of world works
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    I always ensure that there is a claw-back of any incentives offered to the tenant if they assign, vacate, restructure etc as well as having the original tenant responsible for the rent if the new tenant defaults during the current lease term. As there aren't incentives for the further terms, the claw-back doesn't apply.

    Giving or selling the shares to someone else is afaik a change of ownership/control. There's a clause to cover the transfer of >50% of the shares which triggers the assignment provisions.

    The shopping centre management can't be too major if they're offering options without adequate protection for themselves ie 5 year market reviews, demolition and relocation clauses.
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes very common to use companys that way. The company that owns the lease should do nothing else and not own anything. Directors should avoid giving a personal guarantee (Not always possible though)

    Changing shareholders doesn't really improve anything because shareholders are not liable for anything - unless provided a personal guarantee.

    When selling the business you should try to negotiate ending the first lease and the new owner ending up with a new lease - not always possible.
     
  4. Truly Exotic

    Truly Exotic Well-Known Member

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    Yes in my case a personal guarantee was needed. It was for a restaurant. And I sold so I had to reassign the lease to the next guy.

    I guess one of the selling points of the business was a long lease

    I just thought by transferring the shares on paper the company with the lease stays the same. And in hindsight we may not have even needed to inform them
     
  5. Scott No Mates

    Scott No Mates Well-Known Member

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    That's not always advantageous to the tenant as it may bring forward a major rent review eg market review or tie in over-market rents or other unfavourable conditions.
     
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  6. Truly Exotic

    Truly Exotic Well-Known Member

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    I'm not too sure what happened there. It was a large shopping centre. Judt below size wise of the Giants.
    I was a total newbie and still am. But I did find it odd that the clause was badly written.

    However thankfully for that. It saved me almost $200k.
     
  7. Truly Exotic

    Truly Exotic Well-Known Member

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    That was my impression too. Also the lessee doesn't have to offer a new lease. However rid they didn't want to they may just had a clause disallowing reassigning leases
     
  8. D.T.

    D.T. Specialist Property Manager Business Member

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    As a landlord or property manager, wouldn't you disallow a lease with an empty company as reduces your recourse options?
     
  9. Ross Forrester

    Ross Forrester Well-Known Member

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    Yes. A landlord will do financial DD on a tenant unless it is say, a monthly lease with no incentive.
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Transferring o the shares may have been an option but your guarantee would still be in effect.
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You will be surprised how many don't - both sides.

    I had a lawyer friend buy a commercial building based on yield. The tenant company paid one months rent and then went under. It turned out both the vendor company and the tenant company had the same persons behind them.
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Bloody oath.

    But it's like the old saying never give a guarantee but always ask for one.
     
  13. Scott No Mates

    Scott No Mates Well-Known Member

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    I have found plenty who are on the ball with the legal aspects but few who were commercially savvy.
     
  14. Stewart

    Stewart Member

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    A lot of commercial/retail leases include change of control provisions to catch out if the shareholding of the lessor changes. In practice, its hard for the landlord to monitor but if they find out, the implications can be significant
     
  15. Ross Forrester

    Ross Forrester Well-Known Member

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    listen to their advisors
     
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