Partners Split and Both Want the Space

[douglasssmith]

Four years ago I leased an office in a small commercial building to an LLC owned by two guys. The building is located in Inglewood, California. The tenancy has been perfect and they are current. However, the partners have had a nasty split. Both have contacted me and each wants to take over the space. I have been told by both that the LLC is being dissolved and each says they are forming a new separate LLC. It is a matter of law who I choose? Could the one I don't choose have a legitimate case against me?

 

[Taxing Matters]

Once the LLC that is your tenant is dissolved, your tenant no longer exists, so you'd not have an existing tenant. The LLC that each of them form would be a new tenant. The main issue based on what little you've given in facts is likely to be the reason you choose one over the other. If the reason is one that constitutes illegal discrimination under CA law you'd have a potential problem. If I were in your shoes, I'd probably make the decision based on which them will pay the most rent for the space. That's not illegal discriminaiton and it gets you the most money in your pocket.

 

[douglasssmith]

Protected class discrimination never came to mind, perhaps because both are black. But I'm constantly running scared since whatever happens these days seems as though the landlord is at fault. I didn't know if there was some provision in the law, for instance, that I must rent to the first one of the two who asked. Didn't think so, but you never know. The LLC has a perfect payment record, typically even paying a week or so before the first-of-the-month due date. I wish I knew which one of the two handled financial matters; I'd go with him. LOL.

I hear your suggestion about going for the money, but since both know the current rent, choosing to raise it at this time seems predatory and taking advantage of an unfortunate situation. But thank you very much for the overall reply. It was helpful.

 

[Taxing Matters]

I hear your suggestion about going for the money, but since both know the current rent, choosing to raise it at this time seems predatory and taking advantage of an unfortunate situation. But thank you very much for the overall reply. It was helpful.

Then pick some other criteria to use that's objective, whether it's the first one to sign the lease and pay the deposit, the one willing to commit to a longer rental period, or even a flip of the coin.

 

[STEPHAN]

I wish I knew which one of the two handled financial matters; I'd go with him.

Ask. You are free to ask lots of questions.

 

[adjusterjack]

douglassmith, are you still within a current lease year?

When they signed the lease did you get a personal guarantee?

Could be important as to how you handle the situation.

Anyway, that they have been good with the rent doesn't mean that they will continue to be good with the rent.

I'm a former landlord. My advice. Tell them you're not getting involved and they need to work it out between them. Have your "pay or quit" notices ready just in case.

 

[zddoodah]

It is a matter of law who I choose? Could the one I don't choose have a legitimate case against me?

When does the lease with the LLC expire?

As long as the lease is in effect, the LLC is your tenant, and that's all that matters. You don't get to "choose" between the two member of the LLC (LLCs don't have "partners"). Knowing that there is a dispute, any change to the lease during the term of the lease should require both/all members of the LLC to sign, and you should seek advice from a local attorney to make sure you don't do something that costs you a lot of money down the road. In particular, you need appropriate legal advice in the event that the members dissolve the LLC while the lease term is in effect.

By the way, did the two members of the LLC personally guarantee the lease?

 

[douglasssmith]

Update and a further concern.

The LLC has been dissolved. I had a personal guarantee for two of the three people involved in the LLC. One is silent and I've never met. One of the two, who I'll call Alpha, has been more insistent (half a dozen phone calls and 2 emails) in taking other the space than the other, who I'll call Beta. Alpha has formed a new LLC. Beta inquired about the space (1 phone call) but is apparently looking elsewhere since he accidentally sent me an email clearly intended for a real estate agent in Beverly Hills. Plus apparently Alpha is one who handled administrative tasks. So I think my original questions have been answered/solved.

New concern: Alpha, the heir apparent, wants to transfer the deposit from the old LLC to the new lease with the new LLC. The problem of course is that the deposit belongs to the old LLC and, according to Alpha, the bank account has been closed. I plan to call Beta and ask if it's okay to handle the deposit this way. I suspect this will be okay since Beta hasn't mentioned or asked about the deposit. But if not, I'll be back here asking how to handle the situation.

 

[adjusterjack]

You didn't answer the question (asked twice) about the lease duration.

It's important.

When is the next expiration/renewal date?

 

[zddoodah]

The LLC has been dissolved. I had a personal guarantee for two of the three people involved in the LLC. One is silent and I've never met. One of the two, who I'll call Alpha, has been more insistent (half a dozen phone calls and 2 emails) in taking other the space than the other, who I'll call Beta.

You really need to retain the services of a local attorney. Since the tenant LLC is dissolved (which I assume you've confirmed with the California Secretary of State), it no longer has legal capacity to take any actions (like consenting to the termination of the current lease).

New concern: Alpha, the heir apparent

Heir apparent?

wants to transfer the deposit from the old LLC to the new lease with the new LLC. The problem of course is that the deposit belongs to the old LLC and, according to Alpha, the bank account has been closed. I plan to call Beta and ask if it's okay to handle the deposit this way. I suspect this will be okay since Beta hasn't mentioned or asked about the deposit.

Beta has no more authority to consent to this than does Alpha. As you noted, the deposit belongs to the LLC, and you're aware that the LLC had three members. Releasing the money to any one of the members without the express, written permission of all members would be a very bad idea.

 

[adjusterjack]

Releasing the money to any one of the members without the express, written permission of all members would be a very bad idea.

Getting in the middle of the tenants' mishigoss would be a very bad idea any day of the week.

 

[douglasssmith]

You didn't answer the question (asked twice) about the lease duration.

It's important.

When is the next expiration/renewal date?

The original one-year lease was signed in 2017. On expiration, they transitioned to month-to-month. There have been rent increases since then with appropriate additions to the security deposit so that it matches twice the current rent.

 

[LdiJ]

The original one-year lease was signed in 2017. On expiration, they transitioned to month-to-month. There have been rent increases since then with appropriate additions to the security deposit so that it matches twice the current rent.

The that it is month to month that really puts you in a much stronger position than if it had a longer lease term. You still have the problem however that the security deposit belongs to the LLC, not to the individual member who wants you to use it for his deposit. You would need the approval of the other LLC members to do that.

 

[adjusterjack]

The original one-year lease was signed in 2017. On expiration, they transitioned to month-to-month. There have been rent increases since then with appropriate additions to the security deposit so that it matches twice the current rent.

My advice, as before - Don't make this your problem.

 

[douglasssmith]

No question in this message. Just tying loose ends in case anyone is interested. I now have an agreement signed by all three members of the old LLC allowing the deposit to be transferred to Alpha, one of the three members of the old LLC. I wrote the agreement and it was revised slightly by an attorney. Thanks for everyone who offered assistance.