Attorneys Laura Walda and Samantha Duran discuss what a lease needs to include if a landlord wants to restrict change of control.
Commercial landlords often rely on anti-assignment provisions to restrict the ability of tenants to assign their interest in a lease to a third party. Such provisions will often explicitly restrict assignments by “operation of law,” which are generally considered involuntary assignments mandated via a court order. Commercial landlords may assume that a change of control transaction violates a basic anti-assignment clause, but clear drafting is necessary for Landlords to protect their interests. Landlords wishing to restrict change of control of a tenant entity should have clear anti-assignment provisions in their leases that expressly restrict such transactions and characterize such “changes of control” as assignments.
A change of control is a significant change in the equity, ownership, or management of a business entity. This can occur through a merger, consolidation or acquisition.
The general rule is that change of control of a corporate entity is not
an assignment by operation of law, and therefore does not violate a basic anti-assignment provision. Courts have reasoned that a landlord entering into a lease with a corporate tenant should be aware that a corporation, or limited liability company, is an entity which exists separate and apart from its ownership, and that a change in ownership of the corporate entity does not change the tenant entity under the lease. [Read more
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