Can I assign my lease?

Under Maryland law, a landlord’s refusal to consent to a lease assignment is only deemed reasonable if it is based on objective grounds and reasonable commercial standards without regard to the subjective personal beliefs of the landlord (Maxima Corp. v. Cystic Fibrosis Foundation, 81 Md. App. 602 (1990)). In Maxima Corp., the court gave the following examples of good faith reasonable objections to a lease assignment:

• Assignee’s inability to fulfill the terms of the lease;
• Assignee’s financial instability or irresponsibility;
• Lack of suitability of the premises for the assignee’s intended use; or
• Assignee’s intended unlawful or undesirable use of the premises.

Conversely, a landlord does not have a reasonable basis for withholding consent if he remains assured of all the benefits bargained for in the lease.

In these difficult economic times tenants and landlords are frequently faced with the need to renegotiate, terminate or assign leases. Landlords and tenants are well advised to keep these rules in mind when considering a potential assignment of a lease.

For more information on this topic, please contact Mark Jensen at jensen@bowie-jensen.com.

The Google Book Settlement Agreement

The Google Book Settlement Agreement may change the way people find or browse for books in the future and it is one of the hottest topics in copyright law in 2009. In 2004, Google announced that it had entered into agreements with various libraries to digitize entire books. Two class action lawsuits on behalf of authors and publishers were then filed against Google alleging copyright infringement. The parties began negotiating a settlement agreement which if approved, could allow Google to digitize and include books in a database, and to sell subscriptions and online access to books.

Authors can either be a part of the Settlement or opt out. If an author does nothing, he or she may be bound by the Settlement; however, in order to receive any benefits of the Settlement if approved, such as cash payments, the author needs to submit a claim form to Google. If the author stays in the Settlement, she can also request that one or more of her works be removed from the database or not be digitized. If the author opted out of the Settlement, the author will not be included in the monetary payments under the settlement, but he or she will retain legal rights against Google and participating libraries, and Google has currently indicated that it will honor an author’s request not to digitize the work.

For more information, see www.googlebooksettlement.com. Feel free to contact Kim Grimsley at grimsley@bowie-jensen.com to discuss further.

Important Information about Business Loans

With access to capital at a premium in the current economy, it is important for potential business borrowers to bear in mind certain essential terms to any loan.

1. If the loan is to be secured by real estate, taxes are payable on the recordation (sometimes close to 5% of the secured loan amount) unless the grantor of the lien is a party other than the borrower. Consider structuring the loan so that the borrower is a related entity and the real estate-owing entity is a guarantor that secures its guaranty with a lien on the real property.

2. A lender typically will want a personal guaranty of the loan from principals of the business. Though this may be unavoidable, consider trying to limit individual exposure as to the scope or duration of the guaranty or as to the individuals on it. If just one spouse in a married couple signs a guaranty, liability is limited to property held in that spouse’s sole name. By and large, in that case, liability would not extend to property held by the couple jointly, as “tenants by the entirety”, because property held that way is reachable only by a creditor of both spouses.

3. Any default on the loan should be conditioned on the lender first giving the borrower written notice and a few days to cure any defaults for non-payment, and 30 days to cure defaults other than for non-payment. Especially for defaults for non-payment, the point is to avoid inadvertent default, if the borrower simply forgets to pay.

4. The business borrower may have certain pre-existing payment obligations – on loans from officers, bonus plans, deferred compensation arrangements and the like. While giving the lender first priority, the loan document should recognize such pre-existing obligations and permit payments to continue so long as no default occurs with the lender.

5. Lenders typically require that business borrowers insure their property, which is the lender’s collateral, at certain levels. Sometimes the lender will require that the insurer be subject to lender approval. In that case, consider offering to confine the choice of insurer to one meeting a certain industry rating standard that is satisfactory to the lender, rather than giving the lender veto power over the insurer. That way, the business borrower preserves some freedom to shop around.

There are many more important considerations to discuss with a lender, and for which a lender may grant some leeway, in arranging a loan. Circumstances differ for each borrower, which is why it is best to ask a lawyer for further advice in any borrowing transaction.

EEOC Helps Employers Plan for Pandemics

The Equal Employment Opportunity Commission has issued guidelines to help employers plan for pandemics, such as the H1N1 virus currently gripping much of the nation, while complying with the Americans with Disabilities Act (“ADA”). The guidance identifies ADA principles that are relevant to questions frequently asked about workplace pandemic planning. This guidance can be accessed at http://www.eeoc.gov/facts/pandemic_flu.html. In addition, the Center for Disease Control and Prevention has issued guidance for businesses and employers to plan and respond to the 2009–2010 influenza season which can be accessed at http://www.cdc.gov/h1n1flu/business/guidance/.

Securities Laws for "Friends and Family" Offerings

There is a popular misconception that operators of privately held companies do not need to think about federal and state securities laws when raising funds through “friends and family” offerings. The reality is that any time a company seeks investment funding – even from friends and family of the company’s operators – the company is almost certainly engaging in an offering of securities that is regulated by federal securities law and any number of state securities laws (known as “blue sky” laws).

Federal and state securities laws generally require all securities – including stock, bonds, options, warrants, membership interests, and promissory notes – to be registered at the federal level and at the state level before being offered or sold. Registration is time consuming and expensive, thus not feasible or practical for most privately held companies.

Fortunately there are several exemptions from the registration requirements, and it is generally easy to structure a “friends and family” offering to fall within one of the registration exemptions. These exemptions are not automatic – it is always important to analyze the investment structure, identify the appropriate exemption, and take all actions necessary to satisfy the exemption.

Failing to recognize the securities implications of investments from friends and family and offering unregistered securities without an exemption can have serious consequences, including:

• repaying investments, along with interest from the time of investment;
  
• paying additional damages;
  
• paying fines; and
  
• personal liability for officers, directors, employees, and agents participating in the offering.
  

This SEC Q&A discusses the basics of federal securities laws and exemptions from the registration requirements, with a focus on privately held businesses. For more information about this topic, please contact Jeremy Garner at garner@bowie-jensen.com.