Real estate can be a major asset in a company. It is very common for a company to lease their offices, stores, manufacturing facilities and distribution centers.
A buyer usually wants to use the company’s real estate. If buying a company’s assets, the buyer can expect to negotiate with the landlord to consent to the assignment of critical leases. That is because in an asset deal the company will have to assign the critical leases. And usually the lease will require the landlord’s consent to the assignment.
On the other hand, the buyer might not have to get the landlord to consent when buying the stock of a corporation or the membership interests of the LLC. Why? Because the company remains the tenant of the real property both before and after the closing of the deal and so there is no lease assignment. Nevertheless, some leases may say that the lease terminates if there is a change of control of the company by stock purchase or merger, unless the landlord consents to the stock sale or merger.
This case involved a Massachusetts corporation that was sold by the seller to the buyer pursuant to a stock purchase agreement. The company landlord accused the company of breaching their lease by not asking the landlord to consent to the seller’s transfer of the company’s stock to the buyer.
The company asked a Massachusetts state court to hold that the landlord’s consent to the transaction was not required. The trial court agreed with the company and its decision was upheld by a Massachusetts intermediate appellate court.
The courts said that the lease only prohibited an assignment of the lease to a nonrelated party. The court concluded that the company “did not assign the lease. Here, the lease always remained with” the company.
This case is referred to Altitude, Inc. v. Altitude Properties, LLC, No. 18-P-972, Appeals Court of Massachusetts, (March 8, 2019).
The court also noted that after the closing the buyer converted the company from a Massachusetts corporation to a Massachusetts LLC; both solely owned by the buyer. The court, the buyer and the seller all agreed that under Massachusetts law, the conversion did not require the landlord’s consent.
By John McCauley: I help businesses minimize risk when buying or selling a company.
Telephone: 714 273-6291
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