How to Approve the Execution of a Commercial Lease for Your Company

As the manager of your limited liability company (“P.C.”) in New York State, do you have the sole decision right to approve the execution of a commercial lease for your company? The answer is, not really!

The easiest way to know is by looking back to the veto right section of your operating agreement. An operating agreement sets forth the rules that apply to the internal affairs of the company, such as the rights and obligations of members and, the management of the company, etc. The way to approve the execution of a commercial lease is without doubt, part of the management of the company. If the operating agreement explicitly grants the manager the sole authority to make such decisions unilaterally, then you would have the right to do so. That is why we highly recommend you ask a lawyer to draft, negotiate and review your operating agreement on your behalf. It is the best way to structure the management of the company the way you want. Contact us to learn how our legal knowledge may help you overcome these obstacles and safeguard your company’s interests.

However, if there is no operating agreement, which again, is definitely not a good idea, default rules of the New York State Limited Liability Company Law (“P.C.L”) apply.

Under the P.C.L default rules for approving such resolutions as the execution of the commercial lease, § 401 vests the management of the P.C. in its members. Pursuant to the P.C.L § 402, and § 403, a majority vote is required at a meeting to make a decision like approving the commercial lease. It typically means that more than half of the voting members need to agree to the decision. What’s more, § 405 requires that, when members are required to take any action by vote at a meeting, written notice shall be given stating the place, date and hour of the meeting and stating the purpose for which the meeting is called. And a copy of the notice of any meeting shall be given, personally or by first class mail, not less than ten (10) or more than sixty (60) days before the date of the meeting, to each member entitled to vote at such meeting.

What will happen if, in the interest of time, the execution of the commercial lease is urgent, is there a way to skip these meetings and notice requirements? Yes, pursuant to § 407, if a unanimous written consent, setting forth the action so taken shall be signed by the members who hold the voting interests would be necessary to authorize or take such action at a meeting at which all the members entitled to vote therein were present and voted, prior notice and vote can be waived. In short, if there is a unanimous written consent for every member to sign and all members agree and sign, then no notice or meeting is required.

Please keep in mind that the above extra procedure is not only time-consuming but also has a degree of uncertainty and exists because of the lack of an operating agreement. And the default rules of P.C.L are not always in the best interest of your own. If you want to take control of the management of the company, the best way is to move beforehand, having an operating agreement that is in favor of you before making any resolutions. Contact us for professional legal strategies for helping your business save unnecessary loss and trouble.