Author: Luci Prosapio

From the Business of Business section of How You Can Avoid Legal Land Mines by Joseph S. Lyles (2003).

A pair of businessmen retained my services to prepare a standard commercial lease. They were friends. Bill owned land and was paying to construct a metal building that Fred, his friend, was going to lease to house his machine shop. They were both experienced in business and had already decided on the basic terms.

However, a few weeks after the lease was prepared and signed, Bill called me with a problem. It seemed that he had expected Fred, the tenant, to remain in the building for at least 10 years, but now Fred was claiming he could and would leave in two years.

I explained that the lease term they agreed upon was in fact written as two years. He said he understood that but he expected his friend to stay much longer so he could be assured of repaying the loan he received to finance the building. I had not been told of this understanding prior to drafting the contract. Consequently, I had to explain that he should have put that expectation in the contract and not relied upon his understanding of his tenant’s plans, even if the tenant was a friend.

The Lesson: This case demonstrates why it is dangerous to go into business with friends. Friends tend to overlook important details, especially those relating to money. But when loss of money becomes a real possibility, a business partner often puts his economic concerns ahead of the friendship.

From the Business of Business section of How You Can Avoid Legal Land Mines by Joseph S. Lyles (2003).

Dave, who was an immigrant with limited formal education, bought a taco stand from a woman who made oral representations that the business was very profitable. She used an attorney to draw up a purchase contract that detailed the series of payments Dave would have to make, but failed to include any representations about either the profitability of the business or other essential terms such as access to parking. And, unfortunately, Dave failed to have an attorney review the contract. He also failed to have an accountant look at the books for the business.

As it turned out, the business had no rights to parking. Without parking, Dave had few customers and could not attract more. In addition to the money Dave paid up front for the business, he spent a great deal of money on operating the business for several months. The business was not making any profits and he soon had to close it. Dave lost everything he paid for the business, plus the initial startup money he invested.

To add insult to injury, Dave was sued by the business seller for the remainder of the payments under the contract.

The Lesson: Be sure to include all important aspects of the deal in any written contract. If it is such a good deal, then both sides should be willing to put all the important promises and representations about it in writing. Also, keep a hard copy of the contract because electronic copies may be corrupted or destroyed.