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CS Professional · Corporate Restructuring, Valuation and Insolvency · Planning and Strategy

During legal due diligence of Narmada Cements Ltd, the acquirer finds that a major plant land parcel is held under a lease whose terms prohibit transfer of lease rights without the lessor's consent. The deal is a slump sale of the cement undertaking. What is the most appropriate response in structuring the deal?

The acquirer should make the lessor's consent a condition precedent to closing. A slump sale does not override a contractual bar on transferring lease rights, so without consent the leasehold may not validly pass, and a price reduction would not cure that defect.

  1. AIgnore it, since a slump sale automatically overrides lease conditions
  2. BReduce the purchase price by the lease rental for one year and proceed without consent
  3. CMake the lessor's consent a condition precedent to closingCorrect
  4. DConvert the lease into freehold by a board resolution of the seller

Explanation

A contractual restriction on assignment binds the parties; a sale of the undertaking does not override it. The prudent step is to require the lessor's consent as a condition precedent so the acquirer gets valid title to the leasehold. A price cut leaves the transfer defective, and a board resolution cannot change the lessor's rights.

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