A business consulting firm (say ‘BusCon’) considered acquiring a marketing agency (say ‘Marketing Inc.’), enabling it to vertically integrate. BusCon’s lease expires in twelve months and the landlord will not grant them a renewal as it has committed the space to a larger Tenant. This is not a problem though, as BusCon’s CEO is excited to move into Marketing Inc.’s underutilized space and relied on these cost savings to help justify the acquisition.
Fast forward – the deal closes and just weeks before BusCon moves into Marketing Inc.’s offices, they receive notice from Marketing Inc.’s landlord explaining that a competing consulting firm in the building has exclusive rights and if BusCon moved into space, that it would be in default of the lease.
As a result, the combined BusCon and Marketing Inc. were forced to relocate. The termination costs were expensive and caused significant strain on the finances of BusCon. In addition, Marketing Inc. was required to pay the restoration cost of its internal staircase to its old landlord, even though the new Tenant in the space enjoys the internal staircase which was never removed.
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