Legality Of Manager Buying Employer's Business Premises

[trajan]

I read in a prominent businessman's autobio that his father once pulled off quite a "property acquisition" coup.

It went like this: X had a small manufacturing business making B2B products. The factory rented its premises on a long-term lease from an industrial property landlord. The landlord was getting on and wished to sell up his properties. So he offers to sell X the premises of both his own factory plus the neighboring factory (whose owner has refused the offer of premises purchase) on the estate for some consideration, say £50,000. X cannot in truth raise even £5,000. But he agrees to think it over for a month. In the meantime he approaches the manager of the neighboring factory - a salaried employee with no stake in the company he covets running and expanding - and offers him the chance to buy his employer's premises for £50,000. The factory manager agrees and, after an agreement to buy is drawn up and signed by the neighboring factory manager, has no problem raising the funds to buy both premises. So X has now effectively "bought" his own premises for little or nothing.

This acquisition of an employer's premises immediately seemed to me to be a breach of the factory manager's implied terms of his service contract.
It effectively gives him a negotiating tool in his relations with his employer that a subordinate could not possibly resist using and which an employer could not help fearing he would use.
But I am not a contract lawyer.

Opinions, anyone ?

 

[Horatio]

The purchase may have been executed through his company which would address much if not all of the Conflicts you mention.

 

[noproblem]

Not much of a so called coup in fairness. If you call this a coup I better keep quiet or the fellas with stripes on their nice navy jackets will be outside the door with some questions. In fairness some fabulous "stunts" have been pulled off in business's over the years but it's a pity they can't be written about. "YET"

 

[8till8]

Its a free country and there are no rules to say certain persons are prohibited from owning certain property.

It sounds to me like the manager of the neighbouring factory is a better businessman than the factory owner (his employer)....well a better strategist anyway

An interesting post though

 

[trajan]

The purchase may have been executed through his company which would address much if not all of the Conflicts you mention.

Regardless of whether the manager executed the purchase through a company of his or not, it is clearly a move that will help him manoeuvre his way into eventual control of his employer's company. He can no longer be merely an employee, that's for sure. That's where the breach of employee fidelity occurs, surely.

You might even say that, given the vital nature of the premises to the factory for an elderly owner with no stomach for moving it elsewhere, it was curtains for that owner and match-win to the manager.

The morality of X in doing this is very doubtful. But X Jr did many more doubtful things in a career of many highs.

 

[ClubMan]

I read in a prominent businessman's autobio that his father once pulled off quite a "property acquisition" coup.
...
Opinions, anyone ?

If it's a published autobiography, why don't you just name the person/people involved instead of engaging in such prevarication?

 

[trajan]

If it's a published autobiography, why don't you just name the person/people involved instead of engaging in such prevarication?

1. The names are immaterial to the legal question.
2. As another above pointed out, much more questionable coups were committed by some of our latter-day business saints.
3. BB would have to bar it for fear of making someone a poster-boy for sharp practice or swindling.

 

[Brendan Burgess]

trajan

Your question can be simplified:

Johnny owns a business and rents a property. The owner of the property offers to sell the property to Johnny and Johnny declines.

Paddy, the manager of the business buys the property.

The rights of the tenant have not changed. Whatever they were at the time.

The owner of the business can move the business if he wishes. If the new owner of the property wants not to renew the lease, he can do so, if the lease and law at the time allowed it.

The new landlord can resign from the company and go into competition if there is no non-compete clause in his contract.

It would all seem straightforward and above board to me.

Brendan

 

[trajan]

@Brendan

Paddy, the manager of the business buys the property [that his employer's business leases] . . .

This is the gist of it: does a factory manager have the right to buy the premises in which his employer's business operates or does this constitute a conflict of fidelity to his employer ?

There are numerous cases where a manager or engineer has been deemed in breach of their employment contract because they withheld important commercial or technical opportunities from their employer - opportunities identified while working for that employer and with the benefit of privileged information or support from their employer's organization - so as to exploit such opportunities within an enterprise of their own.

The situation here is that of an employee secretly acquiring his employer's business premises so that he has additional leverage (rent reviews, maintenance charges pass-on, safety inspector's recommendations costs, etc) over his employer when negotiating the purchase of the business from him. I doubt if a court would see Paddy's purchase of the factory building as simply an investment opportunity in its own right when his employer hadn't seen any advantage in tying up so much capital in the purchase. Plus the fact that Paddy was prepared to pay nearly 100% over the market rate for the premises is proof positive that it was more than just an industrial property investment.

So Paddy is in reality two things to Johnny:
1. His trusted employee as factory manager.
2. His wannabe successor as owner of the business.

I see a very real potential conflict in this situation vis-a-vis Paddy's contract of employment.

 

[Brendan Burgess]

This obviously happened years ago, so the standards would be different then.

The employer turned down the opportunity to buy the property. I see no reason why the employee should not buy it.

And no relationship has legally changed.

Brendan

 

[ClubMan]

This is the gist of it: does a factory manager have the right to buy the premises in which his employer's business operates or does this constitute a conflict of fidelity to his employer ?

Depends on the nature of their contractual relationship but, even then, a contact cannot abrogate certain rights, in particular constitutional rights. And, as far as I know, any individual is perfectly entitled to buy any property offered for sale. I can't really see what the issue is here or why you think that there may be one?

 

[trajan]

I know Brendan is an accountant, not a lawyer - though some accountants are also tax bar members.

I don't know your profession, Clubman.
But given your dismissal of any conflict here between someone acting solely in his employer's interest vs someone acting largely in his own interest, i.e. getting control of the business, then you hardly know much on employment law.

 

[ClubMan]

I don't know your profession, Clubman.
But given your dismissal of any conflict here between someone acting solely in his employer's interest vs someone acting largely in his own interest, i.e. getting control of the business, then you hardly know much on employment law.

Tell me where exactly I am wrong instead of engaging in ad-hominem attacks. If you can. I mean, the fact that you're asking about this issue obviously means that you haven't a clue yourself.

Contractual obligations to an employer can never, ever trump/abrogate constitutional rights such as the right to own/buy property.

 

[trajan]

Implied Terms - Irish Legal Guide

Overview of Implied Terms This article deals with some commonly found provisions which are implied in employment contracts at common law. The matters referred may be the subject of an express contractual condition, which may modify or alter the common law position. See the article on the...

legalguide.ie

Right to buy property isn't the essential problem. It is the effect of being thereafter his employer's landlord as well as a senior employee.

 

[ClubMan]

Implied Terms - Irish Legal Guide

Overview of Implied Terms This article deals with some commonly found provisions which are implied in employment contracts at common law. The matters referred may be the subject of an express contractual condition, which may modify or alter the common law position. See the article on the...

legalguide.ie

Right to buy property isn't the essential problem. It is the effect of being thereafter his employer's landlord as well as a senior employee.

So you can't tell me where I'm wrong and yet you're trying to tell me I'm wrong. Right....

 

[MrEarl]

I'm honestly amazed that this discussion has continued.....

The employer is now also the tenant of the employee, its that simple, based on the information provided.

While the employer (tenant) may not like the situation, that's life, I'm afraid

 

[Brendan Burgess]

i.e. getting control of the business,

How does he get control of the business?

The business owner's/tenant's rights are unchanged.

This all happened years ago. I would imagine that employment law was very different and the employer could probably have easily sacked his manager if he did not like it.

Brendan

 

[trajan]

How does he get control of the business?

The business owner's/tenant's rights are unchanged.

This all happened years ago. I would imagine that employment law was very different and the employer could probably have easily sacked his manager if he did not like it.

Brendan

No doubt the owner's right and expectations of loyalty and fidelity would also be unchanged.

In point of fact, the manager did eventually become owner of that business.

But he took a serious risk in doing so, albeit he likely felt his efforts for the business till then justified his manoeuvre.

X's role - though clearly unethical - seems to be quite legal.

A daisy in the bull's mouth to what's been happening in Ireland Inc today, eh ?

 

[Brendan Burgess]

Hi trajan

Loyalty and fidelity work both ways. Most managers do help and develop the business.

I have seen many cases where employees were disloyal and where employers were disloyal.

If I were a manager of a company and my boss was offered a good deal to buy the premises and he declined I would be wondering about my future. If buying the premises gave me some more options, I would do so.

Brendan

 

[trajan]

Yes, that's a point of view at all times - not just in the dark and dreary 50s with its "paternalistic" employers and like-it-or-lump-it employee relations.