Due Diligence of Landlord, L.L.C. Leases
To:
Buyer, L.L.C.
From:
Chase Beckstead
Date:
11/19/18
Re:
Landlord, L.L.C. Due Diligence Report: Leases
INTRODUCTION
In accordance with our meeting on the 29th of October 2018, you engaged us to perform due
diligence on a property owned by Landlord, L.L.C. (hereinafter “Landlord”). We understand
that you are considering either purchasing the property from Landlord, or purchasing Landlord
directly. In making this determination we understand that you have requested that we review four
leases that are currently in effect on the property. This Report is based on our consideration of
the lease documents with which we were provided.
EXECUTIVE SUMMARY
This executive summary summarizes the main issues and findings identified from our due
diligence. More detailed descriptions of the leases are provided in the Due Diligence Summary
below.
In the event that you purchase the building from Landlord the following provisions will apply:
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The lease between Landlord and Tenant, L.L.C. (“Lease A”) is assignable without consent
from the tenant as long as all other leases in the building are also being assigned.
The lease between Landlord and Simpson Advisors, L.L.C. (“Lease B”) is assignable
without consent from the tenant if the assignment is part of a sale of Landlord, Landlord’s
business, or a change of control. However, Landlord must provide the tenant with notice as
further defined below.
Because the lease between Landlord and Timp Chemical Control, L.L.C. (“Lease C”) is
silent as to assignment, the lease will be governed by statute which allows Landlord to assign
the lease without consent from the tenant.
The lease between Landlord and LSJ Commercial Services (“Lease D”) is assignable without
the consent of the tenant as long as the assignment is part of a sale of all, or substantially all
of Landlord’s assets.
Thus, Landlord would not be required to obtain consent from the tenants in order to effectuate
the assignment, nor would any tenant have the right to renegotiate or terminate their lease as long
as all leases relating to the property are being assigned, and the assignment is made in connection
with a sale of all or substantially all of Landlord’s assets.
If instead you purchase an equity interest in Landlord, no assignment would be necessary as the
landlord of each lease would not change. Additionally, none of the four leases detailed below
contain provisions that would allow the tenant to terminate or renegotiate their respective lease
upon a change of control.
DUE DILIGENCE SUMMARY
I.
Current Tenants
Lease A
Lease B
Lease C
Lease D
II.
Lease B
Lease C
Lease D
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Name of Tenant
Tenant, L.L.C.
Simpson Advisors (Nevada), LLC
Timp Chemical Control (Utah), LLC
LSJ Commercial Services
Lease Term Provisions
Lease A
III.
Name of Landlord
Landlord, L.L.C.
Landlord, L.L.C.
Landlord, L.L.C.
Landlord, L.L.C.
Possession
Date
May 2, 2017
Term
Thirty-six
(36) months
April 1, 2017 Sixty (60)
months
January 1,
Sixty-three
2016
(63) months
April 1, 2017 Thirty-six
(36) months
Termination
Date
May 2, 2020
Extension
March 31,
2022
Tenant can extend for one two-year
term by giving the landlord notice of
its intent to extend six (6) months
prior to the end of the original lease
term.
Base rent of each year of the
extended term will be increased 3%
from the previous year.
None
April 1, 2021
April 1, 2020
Assignment and Change of Control Provisions
None
Any time before the termination of
the lease the tenant can extend for
one three-year term.
Rent for the extended term will be
95% of Fair Market Value at the
time (Fair Market Value, as defined
in Lease D, is the annual amount per
square foot a comparable tenant
would pay and a willing comparable
Landlord of a comparable building
would accept (cannot exceed 110%
of the then existing base rent))
Lease A
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Assignable without consent from tenant as long as all other leases relating to
the property are being assigned as well.
If not all other leases relating to the property are being assigned, then Landlord
must obtain consent from the tenant to assign Lease A or such assignment
would be void and would constitute a breach of the lease giving the tenant the
opportunity to end or renegotiate the lease.
o Tenant cannot “unreasonably withhold consent.
o Lease A does not contain a notice requirement.
In the event that you purchase the building, Landlord will not have to get consent
from the tenant to assign the lease as long as the other three leases in the building
are being assigned to you as well.
Lease B
If instead you decide to purchase an equity interest in Landlord, then no assignment
will be necessary and Lease A does not contain any change of control provisions
that would allow them to terminate or renegotiate the lease.
- Assignable without Consent from the tenant as long as the assignment is part
of:
o a sale of an equity interest in Landlord’s business;
o a sale of an equity interest in Landlord; or
o a change of control.
- Landlord must give the tenant notice within two (2) days prior to the
assignment or a change of control. (type of notice is not specified)
Because the building makes up all of Landlord’s business, a purchase of the
building would constitute a sale of an equity interest in Landlord’s business, thus
giving Landlord the right to assign the lease without requiring consent from the
tenant.
Lease C
Lease D
Purchasing an equity interest in Landlord would also satisfy the above requirement
giving Landlord the right to transfer the lease without needing to obtain consent
from the tenant.
Lease C is silent on what is required for an assignment by landlord and/or a change
of control. Because the lease is silent, you can assume that the lease is assignable
without need for consent from the tenant and that a change of control would not
trigger any right for the tenant to terminate or renegotiate the lease.
- Assignable without Consent from the tenant as long as the assignment is part of
a sale of all, or substantially all, or Landlord’s assets.
- Landlord must provide notice to tenant at least 10 days prior to the assignment.
Such notice must contain an instrument addressed to the tenant and signed by
the assignee confirming that the assignee will abide by all terms of the lease.
Because the building makes up all of Landlord’s assets a sale of the building, or
Landlord would give Landlord the right to assign or transfer Lease D without
needing to obtain consent from the tenant.
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