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Friday, Mar 29, 2024

Leases, By-Laws and Liability, Your Legal Questions Answered

Q: My office administrator just informed me that we apparently failed to timely exercise our option to extend our commercial lease. The lease states we had to exercise it on or before September 15, 2007. My landlord now says we are out of luck. He expects us to vacate the premises by February 15, 2008, when our current term is set to expire. Can we really lose our lease simply by missing our exercise deadline by a week or so? Help! A: I hope you are sitting down. The answer to your question is clearly, “yes.” An option to renew a commercial lease constitutes an irrevocable offer that can be converted into an enforceable contract only by acceptance on the terms specified in the offer. California courts generally strictly enforce this rule, especially where the lease specifically describes how and when an option must be exercised. Assuming your lease clearly identifies the time, manner, and means in which you had to exercise your option, I’m afraid your landlord need not accept your delinquent exercise. Notwithstanding the foregoing, and at the risk of stating the obvious, there are few things landlords like more than tenants who pay their rent timely. Assuming you fit that description, I urge you to discover what is driving your landlord to refuse to accept your option. If it is not already clear to you, then ask. There are many theoretical reasons why your landlord is taking this position, including perhaps that your current rental rate may be below market and/or they perhaps have another more desirable tenant who wants your space. If it is the former, and assuming it pencils out for you, you can always negotiate a higher rental rate and sign an amended lease. On the other hand, if it is the latter, you may have to make additional concessions to entice your landlord to choose you over its other option. In either event, I recommend you reach out and seek to resolve this matter quickly and in person, lest you find yourself hustling for other options on an abbreviated time frame. Q: What purpose do corporate bylaws serve? Are they required? A: Corporate bylaws are designed to outline certain policies and procedures necessary for the management and conduct of the corporation’s business affairs. Bylaws are typically adopted, amended, or repealed either by approval of the outstanding shares or by approval of the board of directors. A common exception, however, is where the original directors are not identified in the original articles of incorporation, in which case the incorporators (often the business lawyer responsible for forming the corporation) may draft and adopt the bylaws. Common permissible topics addressed in bylaws include such things as the how, when, and where meetings may be called; proxy policies; quorum policies; appointment and authority of board committees; and the appointment, duties, compensation, and tenure of corporate officers. One of the few mandatory provisions is that, unless it is addressed in the articles of incorporation, the bylaws must set forth the precise number of directors that will comprise the board, or alternatively, provide that the number be not less than a stated minimum nor more than a stated maximum, with the exact number to be fixed by the board or shareholders. Q: I own a commercial building for investment purposes. A general contractor I hired to build out a suite for a new tenant just informed me that one of his employees was seriously injured while working at the site. I have a lot of equity in the building and am concerned about my exposure, if any. Any suggestions? A: At this point, I suggest you immediately pull your files out and look for certain documents. Most importantly, in no particular order, I’d focus on the written construction agreement with your general contractors (specifically the indemnification provisions and the insuring obligations), any additional insured endorsements your general contractor provided to you which reflect you (more specifically, the owner) as an additional insured on the general contractor’s insurance policies, as well as your own commercial general liability policy and any umbrella (or excess) policy. If you don’t have any one or more of these documents, I’d immediately request them from the appropriate party. Once you have assembled the documents, and hopefully assured yourself that you have adequate liability coverage, you might consider putting your insurance company on notice of a potential claim. They may choose to conduct a site inspection, perhaps interview relevant witnesses, and secure copies of any existing reports, including incident reports and the like, prepared by OSHA or any governmental agency that responded to the site (e.g., fire department, paramedics, or police officers). If you have been advised to consider transferring title in the building to a third party (a trust for example), you should first consult an attorney and be counseled with respect to the law regarding fraudulent transfers (loosely defined as the transfer of an asset in exchange for inadequate consideration designed to defraud, hinder, or delay a creditor). Ira Rosenblatt is a business and corporate lawyer and a co-founder and director of Stone, Rosenblatt & Cha, a business law firm in Warner Center. Rosenblatt has earned Martindale-Hubbell’s highest rating (“AV”) for legal ability and ethics and is listed in the Martindale-Hubbell’s National Bar Register of Preeminent Lawyers. He can be reached at [email protected].

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