Legal Question in Real Estate Law in California

Re: LLC breaking a 5 year lease

Whether there is personal liability or not should be in the lease, and you should also check the operating agreement, though these are not conclusive. It is possible that he does not owe the landlord, but the LLC owes the landlord, and he owes the LLC. I would have to look at your broader objectives to determine how to address this.

Best,

Daniel Bakondi, Esq.

IMPORTANT:

No attorney-client nor confidential relationship is created through this communication. You may not rely in any way on this communication, and nothing herein constitutes legal advice nor legal opinion. Your issue may be time sensitive and may result in loss of rights if you do not obtain an attorney immediately.

Re: LLC breaking a 5 year lease

First, the members of an LLC are not "partners," and to think of yourselves as such may lead to confusion and problems. The members of an LLC are the co-owners of a business entity and their rights and duties are quite different from those of partners in a general partnership.

Having said that, I wonder who is the tenant in the situation you describe: is it the LLC, or the five persons who are also the LLC's members? This can be determined by referring to the lease itself. One common arrangement is for the LLC (or small corporation) to be the tenant, but for the landlord to require personal guarantees from the LLC's (or corporation's) major owners.

Typically, if five individuals enter into a lease, they are co-tenants and the landlord can look to them all, or any one of them, for all the rent. Then, among the co-tenants, each of them has a right to recollect any excess paid to the landlord from the other co-tenant(s) who under-contributed.

Also, note that an LLC is supposed (by law) to have an "operating agreement" between its members (owners), which is the LLC equivalent of a corporation's bylaws. The operating agreement is where a lawyer would look - in addition to the lease - to find the answers to your question.

It's really, really important for the co-owners of a small business to understand the consequences of the form of business entity they use, whether it be a general partnership, corporation, LLC or something else. The business is not its owners - it is a separate entity - and business leases should be in the name of the business, with the owners perhaps being guarantors. Having five individuals as lessees on behalf of the business (if this is the case here) is not a good idea, as it might cause the business operation to be deemed a partnership and there would be a loss of personal immunity from liability, accounting issues, and vulnerability to dissention where one of five decides to limit or discontinue his participation.

In sum, the answer is to be found by reading the lease and the operating agreement. All five co-owners should then get and read a paperback self-help law book about setting up and running a California LLC.

Re: LLC breaking a 5 year lease

Your rights and remedies are defined in your partnership bylaws and documents, review them. No doubt, you'll have to sue him if he defaults. Whether and how to replace him is defined in the same place. If this is in SoCal, feel free to contact me if serious about getting legal help.