VIC Can Landlord Withhold Consent to Transferring Shares to Beneficiaries?

Discussion in 'Commercial Law Forum' started by Green, 1 August 2018.

  1. Green

    Green Member

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    Hi,

    Last year, my father who was the only company director passed away. My brother and I became the directors of the company, but have been unable to transfer the shares that belonged to our father.

    The commercial lease requires that a change in membership of the company requires landlord consent. The landlord is aware we are company directors. With the assistance of a lawyer, we asked for consent from the landlord to transfer the shares and he said he would not consent unless we agreed to some additional terms in the lease.

    We are not comfortable with these terms as they require us to be liable for repairs and maintenance of things we don't believe we should be responsible for. Our lawyer agreed this was unreasonable. Now we are in limbo as the landlord stalls the lawyer which effectively incurs more fees that we can no longer afford.

    The advice we received was negotiate or do nothing (this is not an option as shares in a deceased person's name can surely only stay there so long, it limits our options tax wise,we can't change banks as they won't open one with a dead shareholder etc).

    Please help!
     
  2. Paul Cott

    Paul Cott Well-Known Member
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    Hi Green,

    Surely, the clause in the lease prohibiting transfer of shares doesn't operate when someone passes away. In any event, the landlord may in fact be prohibited from withholding consent unreasonably. That is the law with regards certain things and giving consent. Perhaps, though I note you may be lacking money, you can make an application to a court or tribunal (such as VCAT n Victoria) for an order or injunction as to the transfer. Hope that helps. Good luck.
     
  3. Green

    Green Member

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    Hi Paul, thanks for your reply. I would think that the consent requirement doesn't apply in this case either but I can't seem to get any authority to support it. I am still confident that vcat would rule in our favour so I will go with that option (even though our lawyer never suggested it hmm).

    Thanks again,
     
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  4. Rob Legat - SBPL

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    Several things spring to mind:
    1. The landlord may need to be 'reasonable' in their withholding of consent. Enforcing this may require court intervention.
    2. A careful reading of the assignment clause of the lease may give you an angle, but you will likely need a lawyer to consider it fully. If the clause is not appropriately worded to preclude a transmission of the shares, but only an assignment, there may be a loophole for you not to need consent. Consider this at your own peril.

    Regardless of the above, the simple fact is the shares are already assigned at law. Under the will, the executor holds legal title to all of the deceased's assets as personal representative.
     
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  5. Green

    Green Member

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    Thanks Rob,
    The exact wording is " the landlord may terminate this lease if the tenant is a corporation and without the landlords written consent, there is a different person in effective control of the tenant as result of changes in membership of the company, beneficial ownership of the shares or beneficial ownership of the business or assets of the company ". It then says " effective control means the ability to control the composition of the the board of directors or having 50 percent of the shares giving the right to vote at general meetings".
    Our lawyer sent a letter to the landlord asking for consent which was declined and is now being used as leverage to agree to conditions in their favour. I wonder if consent to us being directors would be implied consent to becoming shareholders. I also wonder how applying for probate would effect the share transfer.
    Thanks again,
    Green
     
  6. Rob Legat - SBPL

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    It's the shareholding that controls directorship, so a change in just the directors doesn't trigger the clause. Since it's an 'effects' of change not 'manner' of change-type clause, you probably can't argue it's a transmission not an assignment.

    The thing is, though, there has been a change in the control because the shares are now part of an estate. This may ultimately come down to an argument in court unless one of you backs down. I would expect that you should be successful due to the circumstances of it being a change 'thrust upon you'.
     
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  7. Scruff

    Scruff Well-Known Member

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    Just a thought, but it seems that the landlord is using the situation to try to modify the contract itself. The landlord is saying "yes, I'll consent, but only if ..." and that "but only if" solely relates to modifying the contract.

    Might it be worthwhile attacking this from an "unfair contract terms" perspective instead? The landlord's refusal to consent is based on agreeing to those new terms and is not based on the actual circumstances that the clause itself relates to.
     
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  8. Scruff

    Scruff Well-Known Member

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    Additionally,

    The relevant clause does not state that "consent is subject to any additional terms or conditions". Obviously the landlord can refuse, but I don't think that he can on the grounds that he is using. The obvious purpose of the clause is that consent is to be obtained because any such change in the company can affect the company's viability and it's ability to fulfil the terms of the lease. The landlord is not even considering that. Instead he's using the situation to "force" you to agree to additional terms which have no relation to the situation, and which you consider to be unfair, therefore there's an element of duress involved.

    The way I see it, "they require us to be liable for repairs and maintenance of things we don't believe we should be responsible for", has nothing to do with the company, it's composition, or it's ability to fullfil the existing terms of the contract - which is what the purpose of the clause is.

    I'm not a lawyer, so perhaps one of the professionals can clarify if this is a valid argument.
     
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  9. Green

    Green Member

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    I totally agree with you. Over many discussions and some recorded in writing, the landlord agreed my brother and I had the ability and the resources to run the business. So his incentive is to modify the contract in his favour. When I read the correspondence from lawyer and landlord, I noticed that the lawyer stated that the clause didn't trigger consent to change in directorship and related to only shareholders. The landlord then replied saying he would consent to the change in DIRECTORSHIP conditional on signing the additional terms he proposed. He never addresses consent to the shares.
    I wonder if his failure to technically withold or provide consent to the transfer of shares within 28 days changes anything? There is a clause in the retail lease act about this
     
  10. Scruff

    Scruff Well-Known Member

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    I believe that proves an ulterior motive, because according to his own statements, there's no reason not to consent based on the company's viability or composition.
    On one hand, there's technically an issue with that, but on the other, it could just be semantics. The way that I see it, is that he is showing very little regard to the technicalities and it again shows an ulterior motive. That strengthens your argument in my opinion.

    My knowledge is very limited and I'm looking at this solely from a "contracts 101" perspective, so in relation to your last question, probably best to wait for Rob or another pro to provide some more input. But it definately seems that you can actually prove an ulterior motive exists - surely that has to be worth something in the legal arena.
     
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