Commercial Real Estate Lease Change of Control Equity Transfer Triggers
Unapproved lease change of control triggers permit landlords to accelerate rent, enforce forfeiture, or demand cash payments that directly erode deal value.
Equity Transfer Triggers
Meaning
Contractual provisions that compel or permit the sale of shares upon the occurrence of specific corporate events are standard features of shareholder agreements. Often executed through drag-along or tag-along clauses, equity transfer triggers dictate when a shareholder must exit the company or can force others to sell. This mechanism governs the liquidation of holdings during acquisition offers or management changes.
It defines the rights of majority and minority investors when a third-party buyer emerges.
Liquidation Event
Majority shareholders rely on drag-along provisions to force minority holders to participate in a total sale of the company. This obligation prevents minority investors from blocking an acquisition that the majority has approved. The trigger activates when a prospective buyer offers to purchase a certain percentage of the equity, usually a controlling interest.
Co-Sale Right
Tag-along clauses protect minority shareholders from being left behind when a founder sells their stake to a new partner. Under these rules, the minority holder can join the transaction on the same terms and conditions as the selling founder. This co-sale trigger prevents a change in corporate control that excludes existing investors.
Remedial Transfer
Default events such as bankruptcy and breach of contract can activate mandatory share transfers. In these cases, the affected shareholder is forced to offer their shares back to the company or the remaining partners, often at a pre-arranged discount. This buyout mechanism ensures that equity is concentrated among active, compliant partners, preserving the operational integrity of the closely-held corporation.
It prevents outside creditors or estranged former executives from gaining voting power, thereby safeguarding the strategic direction of the enterprise from hostile interference.