www.marejournal.com
Real Estate Journal — Spring Preview — April 29 - May 12, 2016 — 13C
M id A tlantic
L aw
By Scott Butler, Esq., Kaplin|Stewart Who is your tenant?
by any land- lord that is a b o u t t o c omme n c e negotiating a let ter of intent for a commercial l ease . The value of any W
ho is your tenant? This should be the first question asked
personal affairs with the en- tity, and using the entity to perpetrate a fraud. A landlord should not enter into a lease with the assumption that it will be able to sue a parent entity or owner for a tenant’s default. If a tenant is insisting on using an entity that does not have sufficient financial strength, the landlord can re- quire an owner or other entity to guaranty the tenant’s obli- gations under the lease. The same evaluation process for the tenant’s financials should be performed in evaluating the guarantor’s financials.
In the event a tenant or guarantor will be an indi- vidual, the applicable state laws should be reviewed to determine what assets will be subject to a judgment in the event a landlord is success- ful in obtaining a monetary judgment as a result of tenant default. Some states require that both the husband and the wife must be the tenant or guarantor in order to execute against any assets that are owned jointly by both individu- als (for example, a residence or joint bank account). The financial evaluation of a tenant and any guarantors
to the financial strength of the tenant and, as a result, the value of the lease. If there is a tenant default, the landlord can attempt to sue the owner or parent en- tity of the tenant through “piercing the corporate veil”; however, this is not an easy task. Although each state has different legal requirements, many states have a strong pre- sumption against piercing the corporate veil. Factors that are sometimes considered in this evaluation are failing to ad- here to corporate formalities, undercapitalizing the entity, substantially intermingling
at the commencement of lease negotiations is a critical step in negotiating a lease, and each landlord must clearly understand who will be liable for any tenant default. Scott C. Butler is a prin- cipal at Kaplin Stewart and a member of the Real Estate Transactions and Corporate Law & Business Planning Departments. Mr. Butler concentrates his areas of expertise in real estate and corporate transactions. He can be reached at (610) 941-2560 or by email at sbutler@ka- plaw.com. n
Scott Butler
lease is dependent on the credit of the tenant and any guarantors, and the tenant’s financial ability to pay the rent that is owed during the entire term of the lease. Many companies operate under nu- merous entities, some of which are formed only to be the ten- ant under a specific lease. If a default occurs, the landlord will only be able to sue the entity that executes the lease as a tenant and any guaran- tor of the tenant’s obligations, unless the landlord is able to “pierce the corporate veil”, which is a difficult task as discussed below. The landlord should request audited financial statements for the entity that is proposed to be the tenant on the lease, and should check the appli- cable state records to confirm that the entity is formed and in good standing. The financial statements should be for the exact entity at issue, and not a parent, subsidiary or other af- filiate. These affiliates will not be liable for any default under the lease, so such financial statements are not relevant a section of the MARE Journal P.O. Box 26, Accord, MA 02018 781-871-5298 • 800-584-1062 fax 781-871-5299 www.marejournal.com Publisher/CEO Linda Christman lchristman@marejournal.com Section Publishers Alissa Aronson araonson@marejournal.com Spring Preview
Firmly Rooted in the Law and in the Community We are well grounded in every facet of real estate law, from acquisition to construction. We are committed to serving the needs of our clients and our communities.
Contact: Scott C. Butler • sbutler@kaplaw.com 910 Harvest Drive, Blue Bell, PA 19422-0765 • 610-941-2560 • www.kaplaw.com Visit our Real Estate Blog: www.philadelphiarealestatelaw.com Visit our Construction Blog: www.pennsylvaniaconstructionlawyer.com Other Offices: Cherry Hill, NJ 856-675-1550 • Philadelphia, PA 215-567-3120 Kaplin Stewart A t t o r ne y s a t L aw
Barbara Holyoke bholyoke@marejournal.com
Section Editor Julie King editor@marejournal.com
KS Ad 6X5.5 Tree Neil S.indd 1
1/29/15 11:42 AM
Made with FlippingBook - Online catalogs