Legal Question in Business Law in California

I can offer you a kind of mixed bag of good and bad news. You took a large risk by personally guaranteeing a ten-year commercial lease for an untested business. The landlord is within his rights to expect compliance with the lease and to enforce the personal guarantee if the lessee business breaches the lease. However, the liability of the business and of the guarantors for breach of a commercial lease is not for 100% of the unpaid rent; instead the liability is capped at the landlord's actual losses despite his bona fide efforts to mitigate his losses by re-renting the premises. If he makes no effort to re-rent after your business vacates the property, he may have a hard time collecting anything from you. On the other hand, if he re-rents in three months at 85% of the rent he was entitled to get, he is entitled to damages as follows: 100% of the rent for three months, plus 15% of the rent for the balance of the lease, plus the arrearages you describe, plus his advertising, etc. costs. (This is a rough approximation of how a court would figure the damages owed).

Answers to specific questions:

Yes, the landlord can "come after" other businesses, bank accounts, assets, etc. owned by the corporation that signed the lease as tenant. If I borrow money from Bank of America and I default on repayment, putting my money in Wells Fargo doesn't exempt it; it's still my money.

As to protecting your house from a legal judgment, there seem to be three possibilities: avoiding the judgment in the first place; protecting as much equity as possible through recording a declaration of homestead ahead of the abstract of judgment; and a Chapter 13 benkruptcy filing. Note that the landlord cannot, by any means I know, "put a lien" on your house without first filing suit, getting a judgment against one or more of the owners of the house, and then recording an abstract of judgment in the county where the house is.

Transferring assets for less than fair market value, with the purpose or effect to "hinder, delay or defraud" an existing or potential creditor is a fraudulent transfer. Such transfers are easily discovered when real estate is involved, and can be set aside by the creditor, whether they involve gifts, below-value sales, or transfers into trusts. You may want to look at Civil Code sections 3439 to 3439.12, the California version of the Uniform Fraudulent Transfer Act.

If the transfer were into a revocable trust, it would not be fraudulent, but it also would not have any protective value, since revocable trusts are transparent against creditor collection efforts. See Gagan v. Gouyd (1999) 73 Cal.App.4th 835.

I don't understand your post. Are you saying you have an oral commercial lease? A lease for a period longer than a year must be in writing. If it is not in writing, it is unenforceable. (Civ. Code, sect. 1624 subd. (a)(3).) I suggest you sit down with an attorney and determine how to get out of this lease, before you attempt to avoid creditors with hokey transfers.

The other attorneys are right on point here. It seems from your post that you have an oral lease - which is not typical in a commercial situation. Consult with an attorney in your area for specifics.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

Mr. Whipple gave you good advice. The other two attorneys are not careful in reading.