Small Business FAQ: Sale of Business/Buyer Goes Behind Seller’s Back

Small business owners hoping to sell a business must invest in a well-drafted commercial lease and should definitely need an even tighter buy-sell agreement.

Question: 

I sold my small business to a buyer and we try to make the landlord agreed with everything. While I was on vacation, the buyer went to the landlord on his own for some negotiating and the landlord made him sign a lease, completely new lease, new rent, new terms.

I was not present and I didn’t sign any paperwork to exit the lease, I just asked the landlord to run the buyer credit and financing to see if he was qualified for his part and asked that the landlord not sign anything before the buyer paid me first.

Well, now the landlord is holding my security deposit and deducted a rent discount and tacked on water bills for the past 2 years.

  • First, can a landlord do that all of the above?
  • Second, that rent discount has been a pattern and practice for the past 2 years, can the LL just undo that?
  • Third, can the landlord assign a lease to a new tenant without my involvement?  This question was asked by Giuseppe. You can read the original question here

Answer:

Smells Like Bad Faith

Dear Giuseppe,

Sorry about your situation. Sounds like your buyer purchased you a few headaches and you’ll likely need and local advocate on your side to help you resolve this issue.

Here are a couple of tips:

  • First, your lease with the landlord will be the most important document in your favor.  It outlines your rights to the deposit and to assigning and exiting the lease.
  • Second, the buy-sell agreement between you and the buyer is your second most important agreement, assuming you have come to terms. A well-drafted contract contemplates a buyer skirting terms of your handshake, but if that fails, see #3 below. 
  • Third, finally, state law typically has a good faith provision, sometimes called a General Obligation Law for situations like this.

Your case smells like bad faith and could be some solid leverage in settlement negotiations.  I suggest you call/email the local bar association for referrals to commercial contract attorneys, ideally with arbitration and litigation experience.

 

The above is not legal counsel nor to be taking a such and you notice. For more information visit scotchpalm.com.

 


 


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