Lesson 60: Friends are Forever, But Don’t Go into Business with Them

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.