Change Of Control Clause In Lease Agreement

The use of the word “effective” to describe the concept of control is often a source of consternation for those who verify this type of clause. As has already been said, the case law in this context provides little indication of the importance of “efficiency.” A common view among leasing professionals is that the use of the term “effective” in transmission restrictions brings indirect changes in the tenant`s control (perhaps upstream of a related business in the structure of the tenant`s business) when the net effect of such an operation effectively influences the tenant`s control. Therefore, in the case of a conventional parent-subsidiary relationship, a transaction involving a change of control of the tenant`s parent company would likely require the lessor`s approval. Those considering the need for consent in relation to a reorganization, merger, financing or other transaction affecting the tenant`s organizational structure must understand the consequences of these transactions in relation to the tenant`s control in interpreting these leasing provisions. Most divestitures in commercial leases limit two types of circumstances. The first is the proposed sale of a lease to an independent third party or to a subsidiary company of a corporate tenant. The second is the withdrawal rental by operating a change in the control or ownership of a business tenant. However, it is easy to avoid this potential scenario by simply incorporating a provision into a contract that explicitly describes how the contract should be treated in the event of a change in control. For example, a company may cancel the contract if the other contracting party undergoes a change of ownership.

This may be an extreme choice, but there must be pre-defined options that will be clearly incorporated into the agreement. Here you will find how an amendment to the control clause can be included in business contracts: therefore, no sale of the lease has been considered. In order to avoid any ambiguity or the need to interpret an amending clause, it is advantageous for the parties to contractually define the circumstances they consider to be changes of control. In business practices, different types of amending clauses can be distinguished. Many contracts prohibit an assignment that prevents one or both parties from assigning their rights and obligations under the contract to a new party. This may seem like a change of control, but it is not a particular action that is taking place. Any change to the control clause must focus specifically on how the contract should be handled when, or when the other contracting party undergoes a certain type of change in its structure and/or ownership. A robust contract will contain clear but detailed clauses, both with respect to endowments and control changes. If the parties have not defined the concept of change of control in the agreement, it is necessary to interpret the concept in accordance with article 65 of the civil code and to determine the meaning that the parties might have given it. To this end, it can be referred to other definitions used in Polish law with regard to the concepts of control, in particular in the areas of corporate law, competition and securities.