Often when purchasing a company, certain assets pose issues not easy to discern. For example, a purchaser can buy real estate through a purchase contract and perhaps even personal property such as furniture and furnishings, fairly easily. When purchasing real estate, title insurance can be ordered, surveys re-dated, and abstracts renewed. Information on mortgages can be obtained from a county clerk’s office and assurances can be given of non-default status.

One major asset exists, however, that is not so easy to determine currently — the status of leases. But there are tools that can help, as follows; and requiring them in a purchase offer can be essential. These are some, but by no means all of such tools.

1. Past breach of lease. If a purchaser is taking a lease amongst other assets, it is critical to know that the lease is not in breach, and that there will be no future landlord or tenant action. But how to find this out? There would be no public filing regarding a breach particularly if no lawsuit has yet been brought by or against either party.

The tool here, is an “estoppel letter” where the seller, tenant, and the landlord each state, under oath or not, that there has not now nor ever been a breach. Having given such assurance, the assuring party is then estopped from asserting a current breach into the future. Of course, it would have been astute for the purchase contract to require an estoppel letter if and when demanded during the lease term. Careful drafting of leases may even attach a sample estoppel letter in acceptable form, as an exhibit.

2. Assignment of subletting clause. A purchaser must also study a lease to determine what rights the landlord has regarding assignment or subletting. There are many variations of this so the assignment and subletting consents need to be carefully examined. For example, it is possible that if this is a store in a chain of branch stores, that there may be a lease clause simply stating that if all or a significant number of related locations are to be sold, the landlord need only be given notice and its consent is unnecessary. Other typical such clauses may or may not require that landlord consent, be reasonable or not and prompt or not. The number of days when landlord consent is required to an assignment or sublet may also be stated.

3. Use clause. A purchaser must study the use clause in every lease. I was once confronted with a purchaser who wanted to open a car dealership. The lease prohibited car dealerships because the landlord had also been a car dealer. Often, leases require only that any Use be permitted by zoning. Sometimes a non-compete clause will determine prohibited competitive users even in an extended geographic radius.

4. Attornment clause. For a person purchasing a landlord position, it’s important to determine if the lease contains an “attornment clause” requiring the current tenant to be governed by the new landlord (purchaser) as the original landlord had been.

5. Internal and external. Every provision in each lease must be examined including, for example, whether or not the landlord’s approval of a new tenant as an assignee rather than as a sub-tenant excuses the current tenant from further liability.

If so, or if not, a purchaser of the landlord’s position should request updated financials of all successor tenants. Hopefully, when the lease was first drafted (or in the purchase contract), provision was made for requiring financial statements on demand. Otherwise, the current tenant (or landlord) may not be compelled to provide one. Knowing what items of equipment and personality go with the departing tenant or remain after the sale are often referenced in the lease.

6. Physical examination. Purchasers are benefited by a physical examination not only by the purchaser itself, but also by a building engineer or inspector. It may be that costly repairs need to be made for safety or government compliance, which might be used to offset the purchase price. It would be helpful to check with the applicable zoning or building department to determine if the building qualifies or perhaps has ever been cited under environmental, federal, state, and local legal and administrative guidelines.

All told, there are many important leasehold analyses that need to be examined when purchasing property that includes a lease. The tools to discover problems prior to purchase may not be obvious, but they exist in your attorney’s lexicon.             

Barry M. Shulman is a partner in the Business Department of the law firm Mackenzie Hughes LLP in Syracuse. Contact him at bshulman@mackenziehughes.com or (315) 233-8211.

Many affluent professionals and business owners put estate planning on hold. Only the courts and lawyers stand to benefit from their procrastination. While inaction is the biggest estate-planning error, several other major mistakes can occur. The following four blunders can lead to major problems.

Failing to revise an estate plan after a spouse or child dies

A death in the family is truly a devastating event, and the grief that follows may be so deep and prolonged that attention may not be paid to this. A death in the family commonly requires a change in the terms of how family assets will be distributed. Without an update, questions (and squabbles) may emerge later.

Going years without updating beneficiaries

Beneficiary designations on qualified retirement plans and life-insurance policies usually override bequests made in wills or trusts. Many people never review beneficiary designations over time, and the estate-planning consequences of this inattention can be serious. For example, a woman can leave an IRA to her granddaughter in a will, but if her ex-husband is listed as the primary beneficiary of that IRA, those IRA assets will go to him per the beneficiary form. Beneficiary designations have an advantage — they allow assets to transfer to heirs without going through probate. If beneficiary designations are outdated, that advantage matters little.

Thinking of a will as a shield against probate 

Many people think if you have a will, you do not have to go through probate or the court system. However, that is not true. A revocable living trust is designed to avoid probate. However, for the revocable trust to be effective, your assets must be retitled into the name of the trust. If they are not retitled into the trust and are held in your name alone with no beneficiary designation, then the assets will be distributed in accordance with the terms of your will. Before an executor is appointed or any assets can be collected and distributed, your will must go through probate and the court system. An individual can clearly express “who gets what” in a will, yet end up having the courts determine the distribution of his or her assets.

Supposing minor heirs will handle money well when they become young adults 

Some multi-millionaires go no further with their estate planning than making out a will. When a will is the only estate-planning tool directing the transfer of assets at death, assets can transfer to heirs aged 18 or older in many states without prohibitions. Imagine an 18-year-old inheriting several million dollars in liquid or illiquid assets. How many 18-year-olds (or 25-year-olds, for that matter) have the skill set to manage that kind of inheritance? If a trust exists and a trustee can control the distribution of assets to heirs, then situations such as these may be avoided. A well-written trust may also help to prevent arguments among young heirs about who was meant to receive this or that asset.

Too many people do too little estate planning. Avoid joining their ranks, and plan thoroughly to avoid these all-too-frequent mistakes.           

Jennifer L. Alfieri, J.D., LL.M., is trust counsel for Tompkins Trust Company. Contact her at (607) 273-0037 or email: jalfieri@tompkinsfinancial.com