Require Tenant to Supply Financial Information if It Stops Being Publicly Traded Company

Issue to Negotiate

Many leases require the tenant to supply certain financial information that the owner requests. But a tenant that's a publicly traded company may demand that the owner give up these lease protections because most financial information of a publicly traded company is easily available to the public—and the owner. Should an owner agree to this tenant demand?

Owner's View

Even though the tenant may be a publicly traded company when it signs the lease, you still want these lease protections. After all, the tenant might one day lose its public status, making it extremely tough to get this information.

Tenant's View

The tenant may argue that, since it's a publicly traded company and its financial information is available to the public, there's no need to make it do your homework for you.

Compromise: Tenant Delivers Financial Information Only if Public Status Ends

As a compromise, do the following, says Chicago attorney Daniel J. Kopp: Say in the lease that the tenant must supply financial information to you only if it stops being a publicly traded company. This way, if the tenant loses its public status—for example, if it's taken over by another company or gets de-listed from a stock exchange—you'll still have access to its financial information.

How Compromise Can Help

This compromise can help owners avoid a situation like this: An owner Kopp knows of agreed to give up the right to financial information because the tenant was a publicly traded company. But the tenant later merged into another public company and became a private subsidiary. When the owner applied for a loan, the lender demanded to see financial information from the tenant. The owner had to plead with the tenant for the information because it had no lease obligation to supply it—and the owner couldn't get it from any other source.

Although the tenant eventually relented, Kopp says that using this compromise could help you avoid having to rely on a tenant's goodwill. You also avoid the risk that a tenant could demand a concession in exchange for information.

Add Lease Language

To use this compromise, add the following language whenever you sign a lease with a tenant that's a publicly traded company, says Kopp. CLLI0015

Model Lease Language

Tenant covenants and agrees that, if during the Lease Term, Tenant shall cease to be a publicly traded company (i.e., if Tenant's shares of stock are no longer traded on a nationally recognized United States securities exchange) or if Tenant's financial information shall no longer be readily available to the public, then, from time to time and upon reasonable notice by Landlord, Tenant shall deliver to Landlord any or all of the following, at Landlord's sole discretion: (i) a current, accurate, complete, and detailed balance sheet of Tenant (dated no more than [insert #, e.g., 30] days prior to such request), including profit and loss statement, cash flow summary, and all accounting footnotes, all prepared in accordance with generally accepted accounting principles consistently applied and certified by the Chief Financial Officer of Tenant to be a fair and true presentation of Tenant's current financial position; (ii) the most recent financial statements for Tenant audited by an independent certified public accountant (which financial statements shall not be more than one year old); (iii) current bank references for Tenant; (iv) a current Dun & Bradstreet report about Tenant; and (v) any other financial documentation reasonably requested by Landlord.

CLLI Source

Daniel J. Kopp, Esq.: Partner, Schwartz, Cooper, Greenberger & Krauss, 180 N. La Salle St., Ste. 2700, Chicago, IL 60601; (312) 346-1300; dkopp@scgk.com.