Pleasanton, CA asked in Business Law for Utah

Q: Can a property owner sell their property when they have a partner in the business but not a partner on the property

The LLC is 50-50 ownership. Prior to the partnership the storefront for the LLC was owned and still is owned solely by the original partner. The original partner wants to sell the property and move into a store front in the warehouse. Can the other partner stop the owner of the property from selling their property using the 50-50 operating agreement as rationale to block the sale of the property?

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1 Lawyer Answer
Wesley Winsor
Wesley Winsor
  • Saint George, UT
  • Licensed in Utah

A: This is an interesting issue that isn't fully answerable via this forum without knowing all the details of the business. Here are the issues that jump out at me:

1. It doesn't seem like the LLC owns the building. Therefore the owner of the building is free to sell the property if he wants to. The "business" is composed of the individual members as well as the business assets, cash on hand, inventory, bank accounts, etc. All of those are portable and as intended by the property owner can be moved to a separate location. This is not to say that one member of the LLC gets to move the storefront wherever he or she wants, but as a property owner, he or she can probably take away the option of the current location.

2. What does the operating agreement say? Does the operating agreement state that as part of the capital contribution of the property owner, he commits to the leasing of the building for the next 20 years? Does the operating agreement say anything about the LLC's right to operate at the location?

3. What does the lease agreement say? Is there a lease agreement between the LLC and the property owner? If so what are the terms?

4. Duty of loyalty. Each member of the LLC have a duty of loyalty to each other and the business. Will the selling of this property be a breach of the duty of loyalty? Is this move going to screw up the business entirely? Was the original understanding of the members to maintain the business location for as long as the business existed? I think that this would be a hard one prove. A members right to receive profits from the business does not go so far as to entitle them to receive the benefits of other property not owned by the business.

I hope this helps. On its face, I don't think that one member can block another member's selling of their property on the basis of a shared ownership in a business that operates out of a location. If the operating agreement or lease agreement say differently then a block is possible but it would be based on those terms.

I hope this helps.

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