Explore a legal case study on M&A transactions involving stock purchases and landlord consent. Learn how understanding lease agreements and state laws can help navigate complexities successfully.
M&A Stories
March 22, 2019
Introduction:
In the world of mergers and acquisitions, one often encounters the complexities of real estate assets. Companies typically lease their office spaces, stores, manufacturing facilities, and distribution centers. When acquiring a company’s assets, negotiating with the landlord for lease assignment is a common requirement. However, when purchasing a corporation’s stock or an LLC’s membership interests, the need for landlord consent is not as straightforward.
The Scenario:
In this particular case, an acquisition took place involving a Boston-based design and innovation firm. This firm assisted businesses in generating innovative ideas for products and services. The transaction occurred through a stock purchase agreement, with the corporation’s stock transferring from the seller to the buyer.
The Legal Challenge:
The twist in this scenario came when the company’s landlord accused it of breaching their lease agreement by not seeking consent for the stock transfer to the buyer.
The Resolution:
The company took the matter to a Massachusetts state court, seeking a ruling that landlord consent was not necessary. The trial court sided with the company, and its decision was upheld by a Massachusetts intermediate appellate court.
The Rationale:
The courts’ decision hinged on the lease agreement, which only prohibited lease assignment to unrelated parties. Since the lease always remained with the company, it was not considered an assignment. Additionally, it’s worth noting that after the deal closed, the buyer transformed the company from a Massachusetts corporation to a Massachusetts LLC, both of which were solely owned by the buyer. Under Massachusetts law, this conversion did not require the landlord’s consent.
Comment:
In summary, when engaging in M&A transactions involving stock purchases, the necessity of landlord consent may not be as straightforward as asset deals. This case exemplifies the importance of understanding lease agreements and relevant state laws to navigate such complexities successfully.
The buyer would have had to obtain landlord consent if the lease required landlord consent in the event of the change of control of the corporation.
Case Reference:
Altitude, Inc. v. Altitude Properties, LLC, No. 18-P-972, Appeals Court of Massachusetts, (March 8, 2019).
By John McCauley: I help businesses minimize risk when buying or selling a company.
Email: jmccauley@mk-law.com
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Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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