In its most basic essence, a change in control provision in a lease changes the tenant of the property. However, this occurrence is more complicated that a simple change in tenancy. First and foremost, it is extremely important that at the time of entering into a lease agreement, both the landlord and the tenant review and completely understand the factors that can trigger a change in control and the ramifications of the same.
The change in control provisions will be different depending upon the clauses in the lease and the nature of the tenant. Hence, if you are a corporate tenant the events that could trigger a change in control of the lease, possibly violating the lease agreement, will be different from a change in control of a non-corporate tenant. Therefore, it is imperative to fully understand how your tenancy status is defined in the lease.
Change of Control with a Corporate Entity
If you are a corporate tenant your lease most likely will contain a clause that clearly defines when a change in tenancy occurs and the consequences of the same. While the below descriptions are some of the more likely scenarios that can trigger a change of control, it is important to review your own lease agreement for its particulars. A change in control of tenancy as a corporate tenant can include;
- When there is a significant change in the composition of the Board of Directors; the meaning of the term “significant” should be clearly defined in the lease agreement. For example, if there is a 51% change in the members of the Board from those seated at the time the lease was entered into.
- When there is a 50% or more change in the group or the individual person who has the right to vote the company’s shares, in various situations, at the named tenant’s voting meetings or as the current holding company.
If your corporation finds itself in one of these two situations, or another situation that would create a shift in the tenancy that would trigger the change of control clause in the lease agreement, it is imperative that the corporation and its Board members follow the protocol outlined in the lease. This could include providing the landlord with proper notice of the change of control of the corporation which has triggered a change in control of the leasing tenant. This is also known as bringing about an assignment of the lease to a new tenant. If the assignment is not done properly, the change of tenant could bring about penalties and, ultimately, a breach of contract.
Change of Control with a Private Entity
Change of control of the leased property when the tenant is a private entity may occur under different situations than those of a corporate entity. In the case of a private tenant, the lease agreement must be carefully reviewed for any changes in control of the business that could trigger a breach of the lease agreement or its assignment to a new tenant. Examples of some tenant changes that could cause a breach of the lease agreement or trigger an assignment of the lease to a new tenant include;
- The sale of the business to new ownership
- A change in the type of business being run out of the leased property
- If the name of the tenant listed on the lease agreement no longer is part of the business
- If the business is in the form of a Trust and the Trust experiences significant changes such as a change in ownership of the Trust
These are only a few examples that can trigger a change in control with a private company. And, as such, it is imperative a tenant review their lease for the particulars.
As in any change of tenancy, it is necessary that the transfer be done properly and in accordance with any and all requirements of the lease agreement. Again, an example of this is proper notice to the landlord of the change of control of the leased property from one tenant to another. In all situations, if the protocol as defined in the lease is not followed by the tenant, there can be significant legal consequences including penalties and an overall claim of breach of contract.
While a change of tenancy might be inevitable in some situations, the key to the successful assignment of the lease or the change of tenancy, in general, can be accomplished if all of the parties to the lease have a full and complete understanding of the provisions of a change of tenancy as stated in the lease agreement.
In the event that you find yourself in need of assistance, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 780 770.