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BizIPEsq.
BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience:  I am a business attorney. I represent individuals and companies with all business related matters.
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I had an LLC partnership. Our LLC signed a five year lease.

Resolved Question:

I had an LLC partnership. Our LLC signed a five year lease. There were no personal guarantees signed. Six months into the lease, my partner (who was the managing partner with 75% ownership; I had 25% ownership) tells me he wants to break up our partnership and dissolve the LLC. He told me he was keeping all of the employees and the office space and wanted me out by a certain date. He said he would assume the lease. I was in shock. Two weeks later, I moved my furniture out and turned over my office keys. I signed a new lease elsewhere. My Partner has been in the office space using it for his new company, a different legal entity than the old partnership which was dissolved, for the past TWO years and is now suing me to pay the share of the lease that "I owe." I don't believe I owe him for several reasons. One he asked that I vacate the premises and that he would assume the least. He could deny this happened so I'm not sure that's the best defense. I believe my best argument is that he has used the office for his sole and exclusive benefit for two years while barring me access to the property. It's also unreasonable to expect me to pay five years of an office lease in which I'm not allowed to use the office. He could have moved out and found a new space that he could afford and we could have then negotiated a buy down of the lease. Does he have a case?
Submitted: 1 year ago.
Category: Business Law
Expert:  BizIPEsq. replied 1 year ago.

TheLegalistEsq :

Unfortunately in the US anyone can sue anyone else for any reason. Whether your former partner has a reason to start a case to the extent that your departure from the company was not evidenced by the proper agreement(s) and/or the liquidation of the company was improper the answer to that is likely yes. The real question is whether he will prevail in the case -- that no one can answer. Let me explain

TheLegalistEsq :

Most of what is permissive in LLCs is described in the companies operating agreement. If you will, the operating agreement is the constitution of the LLC. It tells members (that's what LLC partners are called) what they can and cannot do and under what circumstances.

Customer:

The OA addresses this by saying the obligations of the firm must be settled and the firm dissolved within 60 days. I did some research online regarding terminating lease agreements early. The articles discuss different angles but ONE thing they all had in common is that they clearly stated that if you walk away from a lease, you and any guarantor would be liable for the rent for the rest of the lease or until there is a new tenant. Apparently, the law doesn't allow a landlord to charge one tenant rent once a new tenant occupies the same space and is paying rent. This seems pretty clear. When my partner dissolved our previous legal entity (the LLC) he founded his new entity - an S-Corp under a different name , and began operating from the same office space. In effect, he became the new tenant. So I would concede that our LLC owed the rent until the point in time that the new tenant moved in. My old partner could have moved out which would have allowed me to 1) Negotiated a buy-out with the landlord, or 2) attempt to locate a new tenant myself or hired a real estate broker to find a new tenant, or 3) stay in the space myself and sublease the remaining office space. The new tenant, my old partner's new firm, removed all of those options from the table by staying in the space.

TheLegalistEsq :

You get the point. These are your defenses to his claims. Furthermore, if you have a buy-out agreement you need to review what are your liabilities after the buy-out.


 

TheLegalistEsq :

Did your partner buy you out i.e. did the partner buy your 75%?

TheLegalistEsq :

correction 25%

TheLegalistEsq :

Unless you know for a fact that the landlord was paid by the new s-corp it is possible that notwithstanding the dissolution of the LLC your former partner kept paying the rent in the name of the LLC. Add to that the possibility that you did not have a properly buy-out agreement and this could mean that you are technically still on the hook

TheLegalistEsq :

because the old LLC lease would still be in effect

Customer:

No. He paid me nothing. He never bought me out. Held on to my capital account balance, all the physical assets, all the employees and the office space. I got nothing. Now that he's suing me I'm asking for all of those things in the counter suit. Basically, he completely ignored the operating agreement. I hired an attorney and we sent him notice to get off his butt and dissolve the LLC per the OA and that's when he sued me.

Customer:

However, he and his attorney provided written notice that the LLC had been dissolved fully.

TheLegalistEsq :

in your estimation how much was your 25% worth and how many money is he demanding now?

Customer:

btw, if I'm on the hook then don't I have a legal right to occupy the space? He changed the locks and barred me access. Doesn't seem like one could do that. If I have a legal liability shouldn't I have access?

TheLegalistEsq :

how much money that is

Customer:

The OA says that he has to pay me over a four year period based on a fee calculation. The calculation comes to $50,000, plus $8,000 capital account, plus 25% of physical assets worth about $40,000. So all in, I'm asking for about $70,000. He's not arguing that he owes me that...but he's saying that I owe him about $50,000 over the next several years (and the past two years). Shouldn't I have been allowed to find a tenant for the space?

TheLegalistEsq :

I think being allowed in the space is the least of your concerns. In fact him kicking you out created additional damages for you which you should be able to claim

Customer:

he says I owe him about $50,000 for the lease. IT's only the lease that he's trying to recover....and there are still three more years left on it. It doesn't seem right that I can't force him out so that we can find a new tenant and relieve me of any potential obligation. He can simply force me to pay FIVE years of the lease? Why couldn't I stay in the space and boot him out and have him pay for 75% of the lease?

TheLegalistEsq :

you could have but the issue is that you chose to leave instead of to challenge him. at this time I highly recommend that you retain a litigation attorney and

Customer:

Yea there are a lot of additional damages but those might be harder to prove. My focus has been on proving he hasn't followed the terms of the operating agreement and that he has violated his fiduciary responsibility as the managing partner not to damage me financially.

TheLegalistEsq :

pursue the matter in court. You have sustained significant damages and you need to recover what is owed to you

Customer:

Do you think I have a good case?

TheLegalistEsq :

I cannot say whether you have a good case because I have not reviewed any of the documents but anytime one has damages that is a sign that something is wrong and if something is wrong you have the right to rectify matter and make them right again.

TheLegalistEsq :

Please retain a litigation attorney as soon as practiable.

TheLegalistEsq :

good luck!

BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience: I am a business attorney. I represent individuals and companies with all business related matters.
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