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The Importance of Legal Entities in Leasing and Acquisitions

When commercial real estate companies begin negotiating with tenants, the tenant often proposes a legal entity as a signer on the lease. In some cases, the tenant may also propose a separate guarantor. Given the complexity that some organizations bring to their legal entity structure, how can you be sure you are getting the correct and best possible legal entities on your lease? TRA’s expertise concerning legal entity structure gives our clients an invaluable resource when negotiating with tenants and sellers.


First of all, let’s address what a legal entity is and what it is not. A legal entity can take a number of forms, including a corporation, organization, partnership, trust, special purpose entity (SPE), or an association, to name a few. Legal entities are capable of entering into contracts and agreements with other individuals or entities, and can assume debt or other financial obligations. Simply put, legal entities are formed to conduct business.

Legal Entity Structure

A key component of TRA’s diligence efforts involves a clear understanding of a tenant’s legal entity structure. Not all companies are cut from the same cloth, and legal entity structure can very widely by industry type. For example, investment managers often propose their operating entities as tenants on leases, sheltering invested assets held in separate funds. Lending institutions might have bank branches, broker dealers, and other conduit entities. Diversified manufacturing companies may have an operating entity and a holding company. Parsing through a company’s legal entity structure is an oft overlooked and underappreciated component of leasing and acquisition diligence, but it is something TRA’s team does regularly for its clients.

TRA Can Help

There is no one size fits all rule around legal entities. TRA’s review of a company’s legal entity structure includes a thorough understanding of the proposed entity’s position in a company’s consolidated results. We also explore how the entity is capitalized, its funding obligations, and how ring fencing of risk may protect or expose our clients if a tenant becomes distressed. Whether you are looking at a complex, domestic company or a foreign corporation, TRA’s experience and diligence expertise ensures our clients receive proper guidance and advice whether negotiating which legal entity to place on a lease or modeling guarantor risk on a potential acquisition.

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