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Tuesday, October 13, 2015

Legal Mistakes That Cost Entrepreneurs Time, Money and Headaches…

The economy is improving and it is a good time to consider going into business for yourself. However, entrepreneurs must navigate through a maze of legal issues and decisions when launching a new business. At the outset, you may think some seem inconsequential – but, tragically, that would likely be your first of many mistakes. The choices you make today will have lasting effects on the viability and profitability of your new business venture. Below are some of the most common mistakes made by first-time entrepreneurs, and what you can do to avoid making them yourself.

 

Choosing the Wrong Business Structure

The type of business entity you select will affect your liability exposure, income tax obligations and opportunities to raise capital throughout the duration of your venture. Sole proprietorships, C-corporations, S-corporations and limited liability companies (LLC) all have their advantages and drawbacks. Sole proprietorships are simple to start up, but leave your personal assets vulnerable and offer few tax advantages. C-corporations and S-corporations shield your personal assets, and each afford different tax advantages and disadvantages. Additionally, maintaining the protection afforded by the corporate business structure requires a certain amount of record-keeping and forms which must be filed with governmental agencies. LLCs offer you liability protection, but may not be the best choice depending on various factors, including taxes, ownership structure and, in some states, professional licensure. Often, the corporate structure is the most advantageous, but this decision really should be made in consultation with a business or tax attorney.


The “Gentlemen’s Agreement” – A Handshake and Your Word

Your word may be your honor, but a written contract is the only way to be sure all parties share a mutual understanding regarding their obligations. Whether it is your best client, that independent contractor you’ve been courting, or vendors you have known for years, do not assume everything will go according to plan. Putting your agreement in writing not only ensures that everyone’s expectations are clear, it is also valuable evidence in the courtroom, should things not proceed according to plan. Bottom line – get it in writing!

 

Adding Partners Without a Written Agreement

It’s easy to sweep this one aside when you are passionately focused on the work of getting your business off the ground. And those new partners likely share your same passion. However, until a detailed written Partnership Agreement is drafted and signed, you may be unclear about each other’s expectations in the short term, or, if your business is wildly successful, tied up in protracted, long-term litigation, to establish who owns what (Facebook comes to mind). Redirect some of that passion, and benefit from the goodwill it creates, to negotiate a Partnership Agreement early on that covers responsibilities, ownership structure, provisions for transferring ownership, and what happens when there’s a disagreement about the direction of the company.

 

Sharing Ownership 50/50

Establishing equal percentages of ownership in the company sounds like a fair and reasonable arrangement. However, this type of situation makes it difficult to bring on investors, and can bring the company to a standstill if the partners cannot agree on a decision. Instead, issue shares in the company in such a manner that investors can be added later; and make sure those shares are distributed to the founders with at least a 51/49 split, giving the majority shareholder the authority to make executive decisions even if there is a stalemate.

 

Doing It By Yourself

The internet contains a wealth of information on business formation; some good but most bad or inaccurate. In order to save some precious start-up capital, many entrepreneurs rely on pre-printed forms, general information, or "one size fits all" packages they find on-line. However, starting a business without the benefit of sound legal and accounting advice is like trying to do dentistry on yourself. The gain is definitely not worth the pain! A good business attorney, a business insurance expert, and professional accountant can save money in the long run by forming the company correctly, accounting for risk, and working to minimize legal and financial exposure and tax consequences. Many experts in business formation state that a successful business is like a sturdy piece of furniture: a solid idea supported by legs made of a sound business plan, competent legal advice, focused accounting, and realistic insurance coverage.

 

 


Tuesday, September 29, 2015

Bankruptcy and Your Small Business -

Recently, I was contacted by a former client and small business owner to help him reorganize his business to reduce his debt. After reviewing his financial statements and talking with his accountant, I had to give my client some bad news; that in my opinion, it would be very difficult to keep this business going. Unfortunately, even when the economic climate is good, a business can go bad.

Financial hardship is difficult for any individual but for business owners, it can be particularly stressful as the line between personal and business finances may become blurred.  You may have racked up a lot of personal credit card debt and may be considering filing for personal bankruptcy, but you are concerned about how bankruptcy will affect your small business. Or, your business could be struggling and you may wonder how a business bankruptcy will impact your personal finances.

First, you need to know about the three most common types of bankruptcy: Chapter 7, Chapter 11 and Chapter 13. Under a Chapter 7 bankruptcy, which is a liquidation, assets are used to pay debts, and any remaining debts are “wiped out”.  A Chapter 7 filing can be utilized for both individuals and businesses. A Chapter 11 or 13, which are also available for individuals and businesses, commonly referred to as reorganization, allows debtors with a regular income to set up a new timetable for paying off creditors, while keeping their assets.

The second thing to consider is how your business is set up. If you are a sole proprietorship, and are simply operating the business in your own name, then there is no way to separate your personal assets and liabilities from those of your business. Therefore, any business assets (in excess of the exemption you are allowed) could be surrendered as a part of the bankruptcy. Also, any receivables of the business or other potentially valuable business property could be claimed by creditors in a bankruptcy.

If your business is operated under a separate entity, such as an LLC (limited liability company), an LLP (limited liability partnership), or a corporation, the shares of your business that you own are assets. If partners are involved in the business, the bankruptcy trustee who represents the interest of the creditors could become a de facto substitute partner and force a liquidation of the business.

If your business is struggling, but you are personally doing fine financially, you may consider a business bankruptcy. If you aren’t interested in keeping your business open, you may consider filing a Chapter 7, which will simply liquidate the business. A Chapter 7 is probably best if the business is not going anywhere, does not have significant assets, or if the debts are so completely overwhelming that it’s not possible to restructure them. Keep in mind that vendors and other creditors may have obtained a personal guarantee from you, in which case, you may be personally on the hook for your business’s liabilities, even if you do file bankruptcy for your company.  Personal guarantee clauses are common on many credit applications and commercial leases.

If your business is fundamentally sound, but because of excessive debt, bad contracts, or other unfortunate circumstances faces significant liquidity issues, a Chapter 11 may be appropriate.  A corporate reorganization can be complex and requires a significant time investment from the owners and managers who have to work with creditors and attorneys. It can also be expensive. Unfortunately, most reorganizations ultimately fail.

If you are considering business or personal bankruptcy, it’s important to carefully assess your individual circumstance and consult with a business or bankruptcy attorney who can advise you of all your options and help you navigate the process.   


Wednesday, August 12, 2015

Where to Incorporate Your Small Business.

Should you incorporate your business in your home state? What about Delaware or Nevada, long known as havens for corporate entities? This decision should not be taken lightly because incorporating your business in a particular state will determine, to a significant extent, the laws that will apply to your business. It will also have tax implications.

Often times, the best choice for corporate jurisdiction is the home state where your business is located.  There are several reasons for this. First, filing in a different state will not absolve you of the obligation to pay corporate taxes and comply with filing requirements in the state where your corporation has its operations. For example, if the corporation is located in New Jersey, it will be subject to New Jersey fees and taxes, either as a domestic New Jersey Corporation or as a “foreign corporation” doing business in New Jersey. Additionally, if you are incorporated in a state other than where you are physically located, you will likely incur another set of filing fees and expenses for a registered agent who is physically located in the state of incorporation. For example, if you are incorporated in Delaware but are physically located in New Jersey, you will be subject to the fees and taxes of both states.

Many companies opt to incorporate in the State of Delaware, even though very few of them are actually based there. Approximately 60% of Fortune 500 companies are incorporated in Delaware. These major companies do so because Delaware’s corporate laws are generally favorable to business and management.  Delaware also has a special Court of Chancery that hears only business law cases. These courts afford companies a degree of consistency and predictability in rulings, which may or may not be found in other states.

Many entrepreneurs also consider the State of Nevada. Many companies are attracted to Nevada’s pro-business laws and favorable tax policy. Nevada also has a special business court, similar to Delaware’s Court of Chancery, although it is not as well established and lacks the breadth of case law that Delaware has.

If your company is engaged in risky or litigious business, then Delaware, Nevada or Wyoming may provide some additional liability protection.  For businesses that are essentially holding companies or otherwise lack operations as a traditional business would, forming a company in these states can also make a lot of sense since the business would not be subject to the laws of multiple states. As in all business-related matters, you should spend some quality time with your attorney and accountant before you decide where to incorporate your small business.

This will be the last blog posting for the summer as I give my keyboard a rest for a few weeks. Have a great rest of the summer and see you in September.
 


Tuesday, July 21, 2015

“We Don’t Get Paid Unless We Win” – What does it REALLY mean?

You've been injured or wrongfully terminated, or the victim of a scam or a breach of contract, and you want to sue. All of your friends tell you that you have a strong case and that any attorney worth his (or her) salt will take your case on a contingency basis - the "we don't get paid unless we win" representation. So you go on the internet, pick up the newspaper or search in the telephone directory (how quaint) to find a lawyer to represent you.

Each day, thousands of advertisements for lawyers can be found in local newspapers, on television stations and even on social networks like Facebook and LinkedIn. Most of these ads explain that the firm doesn’t collect any fees unless they win. Of course, there’s usually a catch with this statement and it centers around what the advertising firm means by “fees” and what other costs you might be expected to pay regardless of whether or not you win your case.

Attorney fees usually involve the time and labor of the attorneys and their staff. These fees do not include the out-of-pocket case costs that are inevitable in any court proceeding. So while you may not be required to pay any attorney fees upfront or at all (unless you win), you usually will be required to pay all related case costs. Case costs are usually expenses charged by third parties for work on your case. These may include court filing fees, expert witness fees, cost of obtaining medical records, court reporter fees, etc. Depending on the scope of your case and the duration of these proceedings, these fees can easily be thousands of dollars.

While some firms will require you to pay case costs as they are incurred, others won’t require upfront payment (especially, if you have a very strong case) and will instead deduct these expenses from the final settlement. Combined with legal fees, these costs may add up to 50% or even more of the settlement. Frequently, attorneys who specialize in litigation, such as personal injury or workers compensation lawyers, have arrangements established with lenders who in return for a promissory note signed by you, will advance the expenses to the attorney.

In selecting an attorney for your litigation matter, it’s important that you take time to understand what expenses, in addition to attorney fees, you will incur. You also need to know if you will be responsible for these costs even if you don't win (generally, you will be responsible) or if the amount won at trial or agreed to in settlement is less than the actual costs of the litigation. Your attorney should be candid with you and if she or he says "don't worry, I always recover expenses for my clients", you should run, not walk, away.


Tuesday, July 14, 2015

Limited Liability Company (LLC): An Overview

The limited liability company (LLC) is a hybrid type of business structure, offering business owners the best of both worlds: the simplicity of a sole proprietorship or partnership, with the liability protection of a corporation. A limited liability company consists of one or more owners (called “members”) who actively manage the company’s business affairs. LLCs are relatively simple to establish and operate, with minimal annual filing requirements in most jurisdictions.


The best form of business structure depends on many factors, and must be determined according to your particular business and overall goals:

Advantages

  • LLC members enjoy a limited liability, similar to that of a shareholder in a corporation. In general, your risk is limited to the amount of your investment in the limited liability company. Since none of the members will have personal liability and may not necessarily be required to personally perform any tasks of management, it is easier to attract investors to the limited liability company form of business than to a general partnership.

  • LLC members share in the profits and in the tax deductions of the limited liability company while limiting the potential financial risks.

  • LLCs offer a relatively flexible management structure. The business may be managed either by members or by managers. Thus, depending on needs or desires, the limited liability company can be a hands-on, owner-managed company, or a relatively hands-off operation for its members where hired managers actually operate the company.

  • Because the IRS treats the limited liability company as a pass-through entity, the profits and losses of the company pass directly to each member and are taxed only at the individual level (which may or may not be an advantage to you, depending on the profitability of the LLC and your personal income tax bracket).

  • Members of an LLC have flexibility in dividing the profits and losses. In a corporation or partnership, profits must be divided according to percentage of ownership. However, with an LLC, special allocations are permitted, so long as they have a “substantial economic effect” (e.g. they must be based upon legitimate economic circumstances, and may not be used to simply reduce one member’s tax liability).


Disadvantages

  • Limited liability companies are, generally, a more complex form of business operation than either the sole proprietorship or the general partnership. They are subject to more paperwork requirements than a simple partnership but less than a corporation. Annual filings typically include statement and nominal filing fee payable to the Secretary of State, informational returns to the IRS, and filing of a state tax return.

  • In certain jurisdictions, single member LLCs may not be afforded the same level of limited liability protection as that of an incorporated entity.

Also note that in many states, an LLC is prohibited from rendering “professional services” which can include companies providing services that require a license, registration or certification.   Such professionals typically have to establish a Professional LLC which does not offer limited liability for professional malpractice.
 


Tuesday, July 7, 2015

Purchasing a Business: Should You Consider Buying Assets as Opposed to Shares?

Of the two common methods used when buying a business, the purchase of shares and the purchase of assets – the asset-purchase option is perhaps the least understood but in many cases the most advantageous. They offer the following benefits:  

 

  • In some states, the sale of all or most of a business’s assets requires the majority vote of the business’s shareholders, but the transaction is not subject to the appraisal rights of shareholders who did not vote in favor of the sale.
  • When buying a business’s assets, a buyer can elect to purchase only selected assets. In doing so, he or she avoids exposure to liabilities and minimizes risk.
  • When a buyer purchases a business’s assets he or she can allocate the purchase price among the assets to reflect the fair market value of each asset. This legal right offers two opportunities: 1) a step-up of the tax basis, 2) higher depreciation and amortization deductions, both of which lead to future tax savings.
  • The avoidance of double taxation in the event the target business is an S-corporation, LLC or partnership.

The above advantages are significant but must be balanced against potential disadvantages. These include:

  • Asset sales can be complex in that they typically require the consent of third parties regarding, for example, office space leasing, contract assignments and permit transfers. Since third parties may use the transaction to renegotiate contracts, delays and cost increases are often experienced.
  • When buying a business or a percentage of a business, it’s often not necessary to delineate exactly what you are buying. This isn’t usually the case when purchasing a portion of assets. Instead, the buyer will likely need to define the specific assets he or she wishes to acquire. If the buyer is acquiring a subsidiary or a division, he or she typically acquires the assets that are used exclusively or primarily by that business unit. However, “shared assets” can cause legal confusion, and it’s usually necessary to negotiate their cost and transfer and/or licensure.
  • If the target business is a C-corporation, it is subject to double taxation in the event of an asset sale.
  • If there are any disclosed or undisclosed liabilities that the buyer is not including in the purchase, there is a risk that the transaction will violate fraudulent conveyance laws on the part of the target business, which may ultimately impact the purchaser who might be compelled to reverse the transaction.

Perhaps it’s because of these serious disadvantages that less than a fifth of all acquisitions are structured as asset purchases. Nonetheless, it makes sense to consider all options when deciding how best to structure any acquisition.       


Tuesday, June 30, 2015

Distracted Driving and You - An Accident About to Happen.

Several months ago, I wrote on this site about teens and texting while driving. However, recent reports indicate that it is not just teens that are driving while distracted. Adults are too.

Full disclosure: In June of last year, I was rear-ended by a distracted adult driver, which caused me to learn more about this problem and prompted this piece.

Distracted driving has emerged as a disturbing trend that poses a serious threat not only to preoccupied drivers, but to other motorists on the roadways. Accidents caused by this unsafe practice have seen a major uptick in recent years due to the widespread use of smart phones to text and post to social media platforms, such as Instagram and Twitter, while driving. Although drivers of all ages may be guilty of driving while distracted (see above), studies have found that teenage drivers are especially tempted to use their phone to snap photos or text from the driver's seat.

More than 3,300 fatalities occur each year as a result of distracted driving, according to the Department of Transportation and Distraction.gov, the official US website dedicated to distracted driving. Drivers are twice as likely to crash if they're texting while driving than if they were paying attention.

Car crashes are the leading cause of death among teenagers, with cell phone use being reported in 18 percent of all distraction-related fatalities in America. These scary statistics have led the National Highway Traffic Safety Administration (NHTSA) to create an campaign against distracted driving aimed at young adults.

If you have teenaged children or you just happen to be up on current trends, you'll know that many people use their cell phones to take "selfies", a nickname for self-portraits. It's come to the attention of law enforcement and safety advocates that teens and older drivers are taking selfies and posting to social media while behind the wheel, some of them even use the hashtag #Ihopeidontcrash with their photos. Expressing that fear, even though it's disguised with a supposedly amusing hashtag, shows that these drivers have an inkling as to how dangerous this practice could be.

On average, texting takes your eyes off the road for 4.6 seconds. Distraction.gov says that at 55 mph, 4.6 seconds with your eyes on your cell phone is like driving an entire football field blindfolded.

Distracted driving falls into three main categories:

  • manual: taking your hands off of the wheel
  • visual: taking your eyes on the road
  • or cognitive: not being mentally present while driving.

Distracted driving laws vary by state, but many (including New Jersey, New York, and Pennsylvania) ban drivers from using handheld phones. In addition, most states ban bus drivers and beginner drivers from all cell phone use (handheld and hands-free), and enforce a ban on texting for all drivers.

With the July 4th holiday fast approaching, you and your family are probably taking to the road for vacation or just to get away for the long weekend. Make it a safe trip and avoid distracted driving. After all, I may the driver in front of you.


Monday, June 22, 2015

Confessions of a Litigator - I Like Mediation

I have a confession to make. Even though I litigate on behalf of my clients, and (so I am told) I'm successful at it, I don't like to fight. I would rather resolve my client's problems without resort to litigation if I can do so while still protecting their interests.  In New Jersey, and in many other states, litigants are required to mediate early in the litigation process. And this is a good thing.

Mediation is one form of alternative dispute resolution (ADR) that allows parties to seek a remedy for their conflict without a court trial. Parties work with a mediator, who is a neutral third party. Usually, mediators have received some training in negotiation or their professional background provides that practical experience.

Unlike a judge, a mediator does not decide who wins; rather, a mediator facilitates communication between the parties and helps identify issues and solutions. The goal is for parties to reach an acceptable agreement.

Mediation can be an appealing option because it is less adversarial. This might be important when the relationship between the parties has to continue in the future, such as between a divorcing couple with children or between business partners. The process is also less formal than court proceedings. Mediation often costs less than litigation, which is another benefit.

Mediation generally takes much less time than a traditional lawsuit. Litigation can drag on for years, but mediation can typically be completed within a few months. Court systems are embracing mediation and other forms of ADR in an effort to clear their clogged dockets. There are some programs that are voluntary, but in some jurisdictions, pursuing ADR is a mandatory step before a lawsuit can proceed.

Mediation can be used in a variety of cases, and it is sometimes required by a contract between the parties. Mediators can be found through referrals from courts or bar associations, and there are companies that specifically provide ADR services. Ideally, a mediator will have some training or background in the area of law related to your dispute.

Mediation is often a successful way to reach a settlement. If parties fail to resolve their conflict, information learned during mediation might be protected as confidential under state law. Settlement offers made during mediation are not admissible if mediation fails and the parties proceed to litigation.

Is mediation right for you and your situation? Your attorney is the one to answer that question but as for me, I always present it as an option to my clients.


Monday, June 15, 2015

What’s really covered on your homeowners insurance policy?

 A solid homeowners insurance policy can provide peace of mind about securing one of your most valuable assets. Unfortunately, many homeowners don’t fully grasp what exactly is covered under that policy, and most importantly, what isn’t.

Homeowners insurance policies generally cover your home itself and other physical structures on the property. Your personal belongings also fall under most policies, along with property damage and bodily injury sustained by you or others on your property. You, your spouse and children, and any guests, tenants, or employees in your home can all be covered under this policy, just be sure to check when you purchase the policy.

Sounds like they’ve got you covered, right? Not so fast; there are a number of possible perils that are often not covered under basic homeowners insurance. Knowing what falls into this category can save you a lot of time and trauma if you ever experience one of these situations in the future.

The two main exceptions are earthquake and flood damage. The impacts of these natural disasters would not be covered by your standard policy. Earthquake insurance and coverage for some types of water damage can often be purchased as an addendum, but flood insurance must be purchased on its own as a separate policy.

Further, standard policies don’t cover damages to your building as a result of your failure to perform regular maintenance on your property. Insect, bird, or rodent damage, rust, mold, and any kind of wear and tear on your property is typically not covered. Neither are hidden defects, mechanical breakdowns, or food spoilage in the event of a power outage. Though there is no current concern for this, damage caused by war or nuclear exposure is also not covered.

Some things have minimal coverage built into your standard policy, for which you can purchase additional coverage as an addendum. Valuable property, including firearms, jewelry, silverware, etc., is usually covered by a standard $1,000. Insurance for replacement value of lost or damaged property is usually determined on an itemized basis that takes depreciation into account. You can expand this coverage by paying to remove depreciation from consideration.  Liability coverage can be increased if desired as well.

These should serve as general guidelines for your homeowners insurance, but be sure to consider the details on your specific policy.  It’s important to consider exactly what you have covered in order to determine what additional types of insurance you may want to purchase.

 


Wednesday, June 10, 2015

At-will Employment: Does it Apply to You?

It may seem unfair, but an employer can fire an “at-will” employee at any time, without good cause – or even without any cause at all. It is a bitter pill, and one that many American workers must swallow. Under the law, you are generally deemed to be employed at-will, unless you can prove otherwise.

Workers who are employed at-will can be fired for no reason, but they cannot be fired for a bad reason. Some reasons are illegal under federal or state law, exceptions to the general doctrine of at-will employment. For example, you cannot be fired for complaining about discrimination, harassment, or safety violations in the workplace, or for complaining about illegal activity. The majority of employers are subject to anti-discrimination laws and cannot fire you based on certain characteristics, such as gender, race or religion. Similarly, you cannot be fired because you have exercised a legal right, such as taking time off for family and medical leave, military service, jury duty, or voting in an election.

Many employers take steps to ensure that the at-will nature of the employment is clearly established and agreed-to by all parties. This is typically spelled out in employment applications and contracts, employee policy and procedure manuals, and may be described as “at-will employment” or simply contain statements that you can be terminated at any time “without cause” or “for any reason.”

Still others have implemented written policies that protect their employees against being fired without good cause, and specify the reasons for which an employee can be terminated. If your employer has adopted such a policy, you are entitled to those protections.  Likewise, if you have signed an employment contract guaranteeing you job security, your employment is not at-will and you are entitled to the protections contained in the written agreement.

Should you sign an at-will employment agreement? Courts have generally held that an employee can be terminated, or not hired, for refusing or failing to sign an at-will employment agreement. While you are not technically required to sign the agreement, if you want to get hired or keep your job, it may be in your best interest to sign the agreement.

Nevertheless, if the at-will agreement contradicts what your employer previously promised you, you may want to think twice about signing on the dotted line. If you relied on the employer’s promises of job security when you accepted the position, you should consult an attorney before signing an at-will agreement. Courts will presume the signed at-will agreement controls your employment, regardless of any prior statements to the contrary.

Just because you sign the at-will agreement does not mean your employer will use it to fire you without cause. There is little to be gained in terminating a productive employee, and most employers will attempt to work with you to resolve any issues. Ultimately, the best way to avoid the perils of at-will employment is to be an outstanding employee. Delivering exceptional job performance is good for the company’s bottom line – and your own.  


Thursday, June 4, 2015

Negotiating a Commercial Lease? Be Sure to Address These Issues

The economy is improving and businesses are reviewing their space needs and location. When it comes time for your business to move into a new commercial space, make sure you consider the terms of your lease agreement from both business and legal perspectives.  While there are some common terms and clauses in many commercial leases, many landlords and property managers incorporate complicated and sometimes unusual terms and conditions.   As you review your commercial lease, pay special attention to the following issues which can greatly affect your legal rights and obligations.

The Lease Commencement Date
Commercial leases typically will provide a rent commencement date, which may be the same as the lease commencement date. Or not. If the landlord is performing improvements to ready the space for your arrival, a specific date for the commencement of rent payments could become a problem if that date arrives and you do not yet have possession of the premises because the landlord’s contractors are still working in your space. Nobody wants to be on the hook for rent payments for a space that cannot yet be occupied. A better approach is to avoid including in the lease a specific date for commencement, and instead state that the commencement date will be the date the landlord actually delivers possession of the premises to you. Alternatively, you can negotiate a provision that triggers penalties for the landlord or additional benefits for you, should the property not be available to you on the rent commencement date.

Lease Renewals
Your initial lease term will likely be a period of three to five years, or perhaps longer. Locking in long terms benefits the landlord, but can be off-putting for a tenant. Instead, you may be able to negotiate a shorter initial term, with the option to extend at a later date.  This will afford you the right, but not the obligation to continue with the lease for an additional period of years.   Be sure that any notice required to terminate the lease or exercise your option to extend at the end of the initial lease term is clear and not subject to an unfavorable interpretation.

Subletting and Assignment
If you are locked into a long-term lease, you will likely want to preserve some flexibility in the event you outgrow the space or need to vacate the premises for other reasons. An assignment transfers all rights and responsibilities to the new tenant, whereas a sublease leaves you, the original tenant, ultimately responsible for the payments due under the original lease agreement. Tenants generally want to negotiate the right to assign the lease to another business, while landlords typically prefer a provision allowing for a sublease agreement.

Subordination and Non-disturbance Rights
What if the landlord fails to comply with the terms of the lease? If a lender forecloses on your landlord, your commercial lease agreement could be at risk because the landlord’s mortgage agreement can supersede your lease. If the property you are negotiating to rent is subject to claims that will be superior to your lease agreement, consider negotiating a “nondisturbance agreement” stating that if a superior rights holder forecloses the property, your lease agreement will be recognized and honored as long as you fulfill your obligations according to the lease.


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