Change of Entities in Commercial Leases?
Updated: Feb 8
Recently our Commercial Real Estate Agency has dealt with challenging issues arising from Retail and Non-Retail Tenants who at the point of renewing or requesting a variation of their lease terms advise they have changed their company names or transferred their trusts to new trust entities or other companies. One entity even liquidated the company who was the named Tenant on a current lease.
These Tenants are highly likely to be in breach of their lease terms and conditions which has the potential to be a huge risk to the continued occupancy of their business premises. Even simple matters such as the insurances held on the property may be at risk or voided with changes of companies or entities who may not be the named insured on any policy. Security deposits and bank guarantees held by a Landlord, plus any registered securities may be no longer accessible particularly if a company is liquidated.
Generally the lease will need to be transferred or assigned to the new entity, any proposed change to the Tenant entity in a lease requires consent from the Landlord. Preparation of the necessary lease documentation fees and any other costs incurred will need to be paid or reimbursed to the Landlord by the Tenant.
Encouraging communication with the Property Manager or Landlord with any proposed changes will assist with achieving a continuing lease and occupancy for a business. Commercial Property Managers should understand some of the implications of these types of changes and it is just not as simple as changing the name of the entity the Tenant invoices are addressed to or Landlord disbursement statements.
Our recommendation that if the Commercial Property Manager becomes aware that the Tenant or a Landlord is contemplating changing their company entities and are in any type of legal contract such as leases or service maintenance agreements that they seek not only accounting advice but also legal advice prior to making any changes.
© Wendy Thomson 2018