A restaurant business has a 20 year lease with a building owner that included a provision requiring that the landlord must consent to any assignment of the lease.  The owner of the restaurant had his business up for sale and had accepted a purchase offer from a buyer with the standard contingency that the landlord consents to assignment of the lease.  Then, the unexpected twist.  A competitor went to the landlord and made an offer to purchase the building and then made a low-ball offer to the restaurant owner to buy the business.  The landlord would not consent to the lease assignment because it wanted to profit from sale of the building.  The restaurant owner was in a bad position –the landlord could force him to take a loss on the sale of his business while personally profiting from the sale of the real estate.

The buyer came to Tracy Jong and a strategy was devised that would defend against the competitor tactic:  Restaurant owner (seller) would sell a 49% portion of his restaurant’s corporate stock to buyer.  In doing so, there would be no lease assignment and the Landlord had no opportunity to withhold consent.  As long as the Restaurant owner remained a majority equity principal in the tenant corporation, the lease could be enforced against either Landlord or the competitor (should competitor buy the property subject to the lease).  The Competitor would eventually lose interest in operating at that location since he would have to wait almost 20 years until the lease expired.  Then the Landlord could be approached to consent to the change of tenant’s principals. The buyer could then exercise an option to purchase the remaining stock in the corporation.

This step-wise transfer required consent of the corporate change by the New York State Liquor Authority and a series of corporate shareholder and voting agreements but would operate to protect the restaurant owner from losing critical value in the sale of his business.  The additional legal work cost the parties around 5% of the potential loss of the purchase price proceeds, but allowed the restaurant owner to preserve 95% of the higher sales price.

Experienced attorneys can provide creative solutions to clients helping them accomplish their business goals and protecting the value of the business the client has built.

Contact our office to see how we can help you in your next restaurant or bar transaction.