A Valuable Primer on Lease Entity Due Diligence

For about fifteen years of my career, Sprint was one of my primary clients.  Sprint had a contract negotiator (and former attorney) named Tom Aggen who taught me a valuable lesson about lease review.  As background, Sprint often stayed in one lease location over several renewal terms.  This means that a property often changed owners during Sprint’s tenancy – sometimes more than once.  Every time a lease or lease amendment came across Tom’s desk, he would go through three simple due diligence steps which ensured that Sprint’s lease rights were valid and enforceable as to a particular property.

This was his process:

Entity Name

If a lease was being amended, Tom would check to see if the entity named as the landlord on the amendment matched the entity name on the last amendment or, if this was the first amendment, on the lease.  If it did not, Tom would check Sprint’s records to see if Sprint had received notice of an entity change since the last lease document.  If a notice was located, Tom verified that the notice linked the previous entity with the present entity.

Where there was no notice in the file, Tom would request that the landlord provide documentation evidencing the transfer of ownership from the previously named landlord to the presently named landlord.  Problem solved.  If no such documentation existed, the entity name on the amendment would be revised to match the tax records and/or deed.  Thus, the next step…

Tax records

Tom always checked to see if the landlord entity on the lease or lease amendment matched the public tax records.  This ensured that the entity in ownership of the property was the entity granting a leasehold interest to the tenant.  If the entities did not match, we would go back to the landlord to address the discrepancy.

Entity existence

Lastly, Tom would run the ownership entity name through the applicable secretary of state database to ensure that the entity existed.  If it did not, often the issue was a misspelling in the draft lease document or an LLC mistakenly referred to as a corporation or something similar.  This was a simple but important modification to make to the lease document.

While these three steps may seem nit-picky to some, they take at most fifteen minutes and ensure that bigger more time-consuming problems do not arise in the future.  They are now part of my standard lease review process.  Thank you, Tom!