You may have grounds to dispute a business lease, depending on the situation. Grounds for disputing a business lease include:
- Inadequate notice to voting members;
- Lack of authority to sign the business lease; and
- Unfavorable lease terms.
A business dispute may also arise if those entitled to vote on the lease did not receive a fair opportunity to do so. If the parties cannot resolve the business lease dispute outside of court, they can bring a lawsuit.
Those disputing a business lease should contact an experienced business attorney who can help you understand your legal rights.
Inadequate Notice to Voting Members
Ultimately, the business’s bylaws or operating agreement dictate the amount and type of notice that the voting members receive. If the voting members didn’t have critical information for an informed vote on the transaction, this could form the basis for a dispute.
Likewise, a business lease dispute may arise if the members do not receive fair, adequate notice of the meeting or transaction details. For example, suppose the operating agreement indicates that members or managers must receive a minimum of five days’ notice. If they only got a notice one day before the vote, it may be possible to dispute the lease.
Lack of Authority to Enter Into the Transaction
You may also dispute a business lease because the person who signed it didn’t have the authority to do so. Likewise, you can dispute the lease if it doesn’t further the company’s ordinary business purposes.
Consider this example: An LLC operates a small, local restaurant. A manager signs a business lease for expensive commercial office space without the approval of the voting member. A business lease dispute may arise because the manager did not have approval. Additionally, the action doesn’t further the LLC’s ordinary business because commercial office space isn’t suitable for a small restaurant.
Terms of the Business Lease Harm the Business
Can you dispute a business lease because the terms are unfavorable or harmful to the business? In some cases, you can. To do so, you would likely need to prove that the terms are detrimental to the company. Examples include:
- Terms that dilute the overall membership interest or shares in the company; and
- Terms that unduly impose financial stress on the company.
If either of these applies, you may be able to dispute the lease.
Business Lease Is the Product of Breach of Duties
Those who manage the important affairs of a business have ethical duties to follow. These include the duty of loyalty, the duty of care, and the duty of good faith. The duty of loyalty requires that managers act in the best interest of the company rather than their individual best interests. The duty of care generally requires that they take care of the company’s assets. This can include putting processes in place to make sure they are aware of the company’s affairs.
If the business lease resulted from a breach of duty, then this might be grounds for disputing it.
Let’s say that Directors A, B, and C sit on the board of directors for Company A, a small restaurant. These directors also sit on the board of directors for Company B, a property rental company. Additionally, suppose these directors are majority shareholders in both companies. The property rental company is struggling financially and is close to defaulting on its debts.
To save Company B, the directors put together a lease for Company A to rent Company B’s rental property even though the rent is unreasonably high. When presenting the idea to Company A, they use misleading appraisal reports. Ultimately, Company A enters into the lease, saving Company B while placing financial strain on Company A.
Here, the shareholders might dispute the lease because the directors breach their duties to Company A. The breach of the duty of loyalty to Company A comes into play because the lease only benefits Company B. Other duties might also play a role. By presenting the lease to Company A through misrepresentation, the directors likely weren’t acting in good faith or protecting Company A’s assets.
Who Can Bring the Business Lease Dispute?
In general, those who suffer an actual injury and have a stake in the outcome have standing to dispute a business lease.
For example, if an LLC is taxed as a partnership, individual members holding an interest in the LLC have standing to sue individually. Members may also have the standing to sue on behalf of the LLC. The idea is that they may suffer an economic injury because membership interest holders bear the LLC’s profits and losses.
Parties may be able to settle business lease disputes outside of court, so seeking legal counsel first is a good idea. If the parties are unable to resolve the dispute outside of court, then litigation may be necessary.
Contact Our Lawyers at Mallery, s.c.
At Mallery, s.c., our curated team of lawyers is specially equipped to handle business lease disputes. Our legal team includes authors and leaders in their legal field. We take pride in our ability to provide clients with innovative and trusted service while zealously striving to achieve a fair outcome. If you are disputing a business lease, call us today.