Category: Contract Law

Net Leases and the Small Business Owner–Part II

As we discussed in the last “net lease” post, “net leases” shift costs and risks that are traditionally borne by the landlord to the tenant.  A “triple net lease” requires the tenant to pay property taxes, property-related insurance premiums, as well as maintenance and upkeep costs associated with the property.

The longer the proposed term of the net lease, the more the small business owner may wish to approach the terms and conditions of the lease as if the small business owner was purchasing the space.  If the small business owner is going to agree, for example, to pay for the maintenance and upkeep of the property (as if he or she was the property owner) for the next five years of more, you may be better served truly understanding your risk of such costs with the particular property before you sign on the dotted line.  Ask the landlord for records regarding work completed on the property.  Ask the landlord to disclose any issues with the property.  Have there been issues with water in the basement?  How old are the roof shingles, etc.?  You may also wish to consider having a trained real estate property inspector for the type of property you would be leasing, inspect the property for issues before you lease, so that you better understand the risks you are assuming when you agree to pay maintenance and upkeep costs associated with the property.

Remember that the landlord will typically be more willing to negotiate and disclose before you sign.  As a result, your legal and other advisors can often make a bigger difference for you if you retain them and seek their advice before you sign.  Your space is a critical investment for your business.  Make sure your investment is a good one.

[Legal advice not only involves an understanding of the law, but the application of the law to a particular set of circumstances or facts.  Blog posts are imperfect tools to address the subtlety and exceptions of the law that may apply in your situation.  As a result, the information in this blog post does not represent legal advice.  If you are in a situation where you need or desire legal advice, we would be happy to help.  Call Paul at 608-358-9413 or complete the Contact Us form to set-up your no-charge initial consultation.]

Net Leases and the Small Business Owner–Part I

Particularly small business owners may face the choice of whether or not to enter into a net lease.  What is a net lease and why should you care?

To varying degrees net leases shifts costs and risks that are traditionally borne by the landlord to the tenant.  Under what is termed a “single net lease” the responsibility for paying property taxes is shifted from the landlord to the tenant.  A “double net lease” shifts the responsibility for paying both property taxes and property-related insurance premiums to the tenant.  Finally, a “triple net lease” requires the tenant to pay property taxes, property-related insurance premiums, as well as maintenance and upkeep costs associated with the property.

Why should you care?  The boilerplate language in your net lease can shift important costs and risks to you, the small business owner, that you should consider, understand, and analyze before you sign the lease.  In Part II of this series we’ll discuss how you may wish to consider changing your perspective on net leases before you sign on the dotted line.

[Legal advice not only involves an understanding of the law, but the application of the law to a particular set of circumstances or facts.  Blog posts are imperfect tools to address the subtlety and exceptions of the law that may apply in your situation.  As a result, the information in this blog post does not represent legal advice.  If you are in a situation where you need or desire legal advice, we would be happy to help.  Call Paul at 608-358-9413 or complete the Contact Us form to set-up your no-charge initial consultation.]

Nonsolicitation of Employees under a Noncompete Agreement

In addressing the enforcement of noncompete agreements between an employer and an employee, Wisconsin law has attempted to strike a balance between: (a) ensuring that employees are not unduly restricted in their rights to compete with their former employers and to seek and obtain gainful employment; and (b) the rights of employers to not have former employees exploit either their inside knowledge or their relationships developed while employed, to unfairly compete.

In order to be enforceable under Wisconsin law, noncompete agreements must generally: (1) be necessary for the employer’s protection; (2) provide a reasonable time period; (3) cover a reasonable territory; (4) not be unreasonable as to the employee; and (5) not be unreasonable as to the general public.

The recent Wisconsin Supreme Court decision in The Manitowoc Company, Inc. v. Lanning, reinforces the danger that Wisconsin courts will strike down overly broad noncompete agreements/provisions that unduly restrict the rights of former employees to compete with the former employer or to seek and obtain gainful employment.  In Manitowoc, the Wisconsin Supreme Court found that the employer could not enforce a broad nonsolicitation provision that prohibited its former employee from soliciting any of its 13,000 employees for two years following termination of his employment.  Proceed with care when drafting such agreements to increase the likelihood that the terms of such agreements will be enforced when your company needs it the most.

Readers may also wish to review a prior blog post on the consequences of drafting a noncompete agreement/provision that is impermissibly broad.

[Legal advice not only involves an understanding of the law, but the application of the law to a particular set of circumstances or facts.  Blog posts are imperfect tools to address the subtlety and exceptions of the law that may apply in particular situations.  As a result, the information in this blog post does not represent legal advice.  If you are in a situation where you need or desire legal advice, we would be happy to help.  Call Paul at 608-358-9413 to set-up your no-charge initial consultation.]

Will a court uphold a noncompete agreement in Wisconsin?

A Wisconsin court will only enforce a noncompete agreement or provision if it:

(1) is reasonably necessary for the protection of legitimate interests of the employer as recognized by the courts;

(2) has a reasonable time restriction;

(3) has a reasonable geographic or activities restriction;

(4) does not preclude the employee from earning a living; and

(5) is not contrary to public policy, including unnecessarily impeding the mobility of workers or depriving a community of a needed service.

If a Wisconsin court finds that a noncompete provision imposes an unreasonable restraint on trade, the entire provision will be found to be illegal, void and unenforceable even as to parts of the provision that standing alone would be reasonable if the court finds the provision indivisible.

What happens if a Wisconsin noncompete agreement with an employee is impermissibly broad?

When considering a noncompete agreement it is important to remember that such agreements are carefully scrutinized by Wisconsin courts.  Wisconsin law favors the unrestricted movement of workers and views critically contractual restraints on trade.

Wisconsin courts have nonetheless recognized that employers have legitimate interests that may be protected by a noncompete agreement provided that the noncompete agreement is narrowly drafted to protect those interests.  A protectable interest of employers includes company goodwill where customers may associate the company’s hard-earned goodwill more with the employee than with the employer.  Another protectable interest of employers is when employees have access to confidential information that may be critical to the ongoing success of the company, including the identity and non-public information of clients and potential clients interested in the company’s goods or services, sales strategies, and pricing.

However, Wisconsin law provides for a severe sanction for noncompete provisions that are not narrowly crafted to protect an employer’s legitimate interests.  If a Wisconsin court finds that a noncompete provision imposes an unreasonable restraint on trade, the entire provision will be found to be illegal, void and unenforceable even as to parts of the provision that standing alone would be reasonable if the court finds that the provision is indivisble.

As a result, it is important to proceed with care when drafting noncompete agreements in Wisconsin.

[Legal advice not only involves an understanding of the law, but the application of the law to a particular set of circumstances or facts.  Blog posts are imperfect tools to address the subtlety and exceptions of the law that may apply in particular situations.  As a result, the information in this blog post does not represent legal advice.  If you are in a situation where you need or desire legal advice, we would be happy to help.  Call Paul at 608-358-9413 to set-up your no-charge initial consultation.]