A Lease Sale Transaction Advice

The decision to sell the leasehold stake

The decision is made by Ms. Williams to sell her leasehold stake. Before she will exercise the option to renew the lease, which is still being contested by Mr. Young, her landlord, she requires legal advice on how to handle the lease. On the following subtopics, the following guidance is given:

Handling the lease before its term is up

If Ms. Williams must depart before the lease’s term is up, she is free to handle the lease however she pleases as long as she abides by the lease’s terms and the property laws. A sublease or a transfer of the lease are the two primary methods for handling the lease. (Silverman, 1987). First, the assignment of the lease means the total transfer of the remaining interests in the eco-treat business to Mrs. Underwood, the prospective tenant. The arrangement recognizes Ms. Williams, original tenant as the assignor and Mrs. Underwood, the new tenant, as the assignee (B.C & H. Corp v. Acme Market, 1980).The other is the sublease of the eco-treat business involving passing certain rights over a defined time, lesser than the unexpired term of the head lease, to Mrs. Underwood.

Factors to consider in deciding whether to assign or sublease the premises

Evidently, the term of the head lease has no express provision on the authority to assign. A lease does not contain an explicit provision on the restriction of the assignment or subleasing. A lessee can transfer his or her interest without the consent of the landlord by the principle of non-alienation of the right to property (Morrisville Shopping Center v. Sun Ray Drug Co., 1955). The decision on whether to assign or sublease the premises requires an analysis of competing facts and interest. First, the eco-treat is a commercial property. The secondly, the reason for the transaction is the relocation interstate plan by the tenant. Thirdly, Mrs. Underwood is not creditworthy, at least from Mr. Young’s perspective. While Ms. William may not need the exercise of the second option of renewal due to the relocation, she still needs to have a longer term of the sale of her interest to gain from the already dwindling eco-treat business. All the enumerated factors go to the root of economics. Given Ms. Williams’ need to relocate interstate and thus dispose of her interests, the most likely sale structure would be an assignment (Merrill, 2001). The transferee may insist on this structure to avoid the default and bankruptcy risks arising from the unexpected sale price. However, to cater for the interest of Mr. Young, Ms. Williams should include a term in the assignment that the original tenant remains liable, to settle the creditworthiness of the transferee and to obligate the tenant to provide the lessor with evidence of the financial strength of the transferee.

Available Remedies

Mr. Young has also indicated his retirement plan to take over the eco-treat business in 2021. On the contrary, the term of the lease allowed Ms. Williams two options of renewal. This raises an issue whether there was proper disclosure of the imminent foreclosure by Mr. Young. The general rule is that all landlords must disclose material facts that would influence the decision of the tenant while signing the lease agreement. Failure to disclose the retirement plan is a grave failure in the duties of a landlord. Ms. Williams can claim for damages as a remedy for the breach of the statutes and the administrative codes by proving that the violation of the law resulted in quantifiable damages (Wood, 1914).

Torrens System Law Matters

From her position, Ms. Williams will be concerned about various issues. One such matter of concern shall be the privity of contract and the indefeasibility of interest created by the lease. The issue with respects to assignments is the privity and the transfer of the interest to the assignee. The Torrens system also addresses the indefeasibility of the interest on the registration of a lease. These points were settled by Bryson J who found that a covenant in a lease is readily seen to be the part of an estate or interest (Chandra v Perpetual Trustees Victoria, 2007). This means that the original terms of the lease are enforceable against and by the assignee whenever there is the privity of estate between her and the landlord. Another concern from Ms. Williams’ position would be the Enforcement of Covenants in the master lease after assignment. In this scenario, it is important to appreciate that it is enforceable against the assignee as the covenant acquires indefeasibility upon registration of the contract. In determining whether a covenant is integral, one must consider whether they are non-personal terms that affect nature, quality, and mode of the land. Additionally, to draw benefits from the assignment, it must be registered.

Conducting due diligence in the assignment agreement

Again, because of the possible limitation of the recourse to the rights in land, it is imperative to conduct due diligence to ensure that the documents of registration are not forged because the guarantee in the Torrens system is limited (Wood, 1914). The due diligence concerns lease terms in terms of terminating, if any, liability clause, physical space and conduct of a search will be obstructed and if anything ought to be removed before the said assignment agreement can be enforced. Lastly, the consideration of the state of the assignor’s residence shall be made as the payment of the transfer taxes depends on it.

Conclusion

Through the assignment, Ms. Williams can receive a good sale structure that can cater for the interests of the landlord, the new tenant, and to provide for her interest in relocating and ensuring a good price, too.

References

Alchian, A. A. (1973). The property right paradigm. The Journal of Economic History (33(1)), 16-27.

B.C & H. Corp v. Acme Market, 419 (D & C 1980).

Libecap, G. D. (1989). Distributional issues in contracting for property rights. Journal of Institutional and Theoretical Economics (JITE)/Zeitschrift für die Gesamte Staatswissenschaft , 6-24.

Merrill, T. W. (2001). The property/contract interface. Columbia Law Review, 773-852.

Morrisville Shopping Center v. Sun Ray Drug Co., 381 (1955).

Wood, J. R. (1914). Registration of land titles. Michigan Law Review , 379-393.