Expert: Jim Avancena, CPM - 12/28/2010

Question
QUESTION: I recently decided to sell my business and have a buyer who has agreed to a price. The buyer has gone as far as to have contracts drawn up by his attorney but wants to make sure that he can have the lease reassigned. Unfortunately there is bad blood between the landlord and my self and he is trying to prevent the sale. The buyer has excellent credit and has a significant amount of business experience. The buyer has agreed to multiple demands by the landlord who just told the buyer (after a month) of conversations) that he does not want the lease to transfer... he told the buyer to let me go bankrupt and then he would rent to the buyer. I am not in danger of going bankrupt. I have other business opportunities in front of me and wish to move on them. Following is the clause in my lease which i feel pertains to this question:

5. Tenant is expressly granted the right to transfer this lease to a new similar business if the current business is sold. The Landlord must be informed, and must approve the transfer of the lease. Tenant shall provide written notification to the Landlord of any such transfer ninety (90) days prior to the effective date of such assignment.

The lease is signed by me personally and is not in the name of the business. It was countersigned by the prior Landlord of the property who subsequently sold to the current Landlord. The current Landlord assumed the lease at closing and has not signed the lease. He is unhappy with the terms and wants more money. The prospective purchaser of my business has agreed to an increase in rent for the duration of the lease. But now the landlord says that he would rather run me out of business and than look to rent the property to the same buyer so that I will get no money from the sale.

Do I have any recourse? My buyer is extremely frustrated and will not hang around much longer. He also has other opportunities.

ANSWER: Seth:
You will need an attorney to answer this question.   

The provision you provided in your question appears, in the first sentence, to give you the express right to transfer your lease to a similar business. However, the landlord must be preparing to argue the new business is not similar and/or that because of the language in the second sentence, that the landlord is not required to approve the lease as stated.    

The language seems ambiguous, however, an attorney may tell you that the first sentence is controlling in this case - it also may not.   You must get an attorney that specializes in landlord/tenant law as soon as possible to advise you in this specific case.

Good luck,

-Jim

---------- FOLLOW-UP ----------

QUESTION: Jim, thank you for taking the time to answer. The business will be operated under the same name and will be the same business (deli/bagel shop. The purchasers have better credit than I do, they have extensive business experience and have significant cash reserves. They have agreed to every demand by the land lord made over the past month only to find, every time that they ask for a copy of the revised lease, that the landlord is making new demands. Most recently he asked for copies of the sales contract, told the buyer that they need to pay all his legal fees and asked for more money. When the buyer agreed, they were told that he was no longer interested in reassigning the lease and that he would just wait for me to go bankrupt and then he would sell the tenant the business and sign a new lease. He has also told the buyer that there is no way he will ever refund my security deposit even though I have significantly improved his property (+$100K of improvements) and have never been late with the rent. He said that I could just sue him for it and he would make it take forever until I just gave up. I am going to lose my buyer and am sick over the fact that this will take months if not years to clear this up. Again, thank you for your time.     Seth

Answer
Seth:

I don't know why you felt you were required to show your landlord a copy of the sales contract. Although I am not an attorney, I don't know why the landlord would be entitled to know the terms of your sales transaction.    Perhaps it is necessary for you and your buyer to show the landlord past financial records that show the buyer has a track record of success in your specific business, but I can think of no reason the landlord is entitled to know the financial terms of your sale.   That will give your landlord a means to measure how far he/she/it may be able to push you into sharing some of your profits with him by blocking the successful completion of your transaction.  

You should have an attorney assisting you in this effort.  It may be that your attorney - with your approval - should legally put your landlord on notice that you intend to hold him/her/it financially liable if the landlord continues to act in a way to block approval of your transaction.   I would not wait another minute to have an experienced attorney advise you of the actions you should take immediately and as further actions develop as this process continues.   

Good luck,

-Jim