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LLP Tenant

QUESTION: My tenant is converting from a partnership into a limited liability partnership. I have been asked to consent to the assignment of the lease from the partnership to the LLP. What should I do?

Consider what, if any, obligations you have in considering the application. If the lease permits assignments with landlord’s consent, which is not to be unreasonably withheld, the landlord has a statutory duty to give consent.

The benefits from converting to an LLP, particularly the removal of a personal liability for the partners in the business, are appealing, and it is that that worries landlords.

The fact that the LLP is unlikely to have a trading history and financial accounts will not necessarily constitute a reason to refuse consent. This can be overcome by reviewing the partnership trading history and accounts.

You can also obtain a copy of the asset transfer agreement to ascertain whether any assets are being transferred out of the business before conversion, which might give rise to an entitlement to refuse consent. Any consent granted should then contain a warranty from the partners and the LLP that the business assets have been transferred to the LLP.

If you are still concerned about the assignment, consider whether additional security is required. Personal guarantees from the partners may not be reasonable if you are dealing with older leases where the landlord enjoys the benefit of partner covenants.

Instead, consider early release provisions for security based on the LLP meeting conventional profit tests. With new leases, a landlord should be able to secure an authorised guarantee agreement from the original tenant partners.

Finally, consider whether there are other provisions in the lease that need to be varied in connection with the conversion. In particular, look at the forfeiture clause to ensure it deals with the insolvency of the LLP.

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