FAQ

Many of the non-numeric provisions of a lease can have critical economic consequences. The main ones, that I generally start with, are (a) who is liable for the tenant’s obligations under the lease (for example: a single purpose entity, a full or springing personal guaranty); (b) what assignment or subletting rights does the tenant have and whether there are any limitations upon what purposes for which the premises may be used (for buy-outs or mergers, or to get out if the tenant’s business gets into trouble); (c) how much, in tenant improvements and operating costs, is the tenant responsible for (some potential tenants are shocked to find out the total amount that the property is really costing them) and which party is responsible for which maintenance and repairs; (d) is there anything about the property that raises insurance issues; and e) what protections does the tenant have, from the landlord’s lenders, if the landlord gets into trouble, especially if the tenant invests a lot in tenant improvements.

This involves several issues. One of the triggering questions is whether the company can simply go out of business, hold a short sale, or give the lender a deed in lieu, without the company’s or its principals’ really having to file bankruptcy. If bankruptcy is indeed called-for, one of the main responses to your question is whether the company (a) can prove, within about 3 months, that it has reasonable period of time if it gets some time and/or monetary relief from the court (a Chapter 11 reorganization); or (b) even if it gets some time and monetary relief from the court, has no reasonable likelihood of being able to continue operating and to turn profitable (a Chapter 7 liquidation). However, even if the company’s prospects are not good, there may ber reasons to file a Chapter 11 before considering converting it to a chapter 7; nevertheless, delaying the inevitable is seldom one such reason. A lot potential clients don’t want to give-up control and put-off fee (usually $1,167 to $1,738), much less the attorney’s retainer, or anything to critical vendors if they want to keep operating; obviously that’s a mistake. All of the foregoing calls for a candid discussion with a qualified professional.