Partnership Robotics

Between Covid, social distancing and now endless Covid variants, we are perhaps all feeling a bit worn out and alone.

In fact, loneliness seems to be breaking out all over.

A recent New Yorker article told of a trend to treat the increased loneliness in older people during Covid with robot pets.

We have had one Leasing Illustrated issue focused on my son’s cat and another issue focused on another son’s dog, but robot pets?

The New York State Office for the Aging started a pilot program distributing robot dogs and cats that bark, purr and lick their paws and found that 70% of the participants felt less lonely.

No data is available on how the little cyborgs felt.

Even though the participants know the pets are not real, they seem real, and people tend to imagine they are real.

English mathematician Alan Turing famously said a machine is said to possess “intelligence” when it can fool a human into believing that it is not a machine.

Isn’t that the same standard used to judge a lawyer’s intelligence?

Some companies are creating “social robots” that can provide “conversation” using a personality profile of their owners based on repeated interaction.

They also are not judgmental, do not get offended and do not interfere with how the owner wants to do things.

If they pay their bills can I get some robot clients?!

Some ethicists have raised concerns in that this approach prevents the participants from developing real intimacy and seeing the world accurately.

But with an aging population and expected huge shortage of caregivers this may be a case of better than nothing.

And as one participant said about her R2D2 “My last husband was a robot, but he wasn’t as good.”

I am paraphrasing, but Alan Turing is rumored to have also said that true intelligence is when you shield yourself from personal liability on your commercial lease.

Landlords are entitled to have viable entities as tenants and will perform due diligence regarding a potential tenant’s finances.

Otherwise, we would all be setting up shell companies as our tenant entities.

In most instances, the tenant will be a limited liability company or corporation, but some businesses, particularly law firms and accounting firms, have traditionally been structured as partnerships (or limited liability partnerships) with not quite the same protection from liability for their professionals as a corporation or LLC.

And just as commercial leases provide that a transfer of stock in a corporate entity is deemed an assignment, transfers of partnership interests are also deemed assignments.

This is done so that a tenant cannot avoid the assignment and subletting limitations in their lease by transferring equity interests rather than transferring the lease.

Put this all together and it is essential for such partnership tenants that their lease include exceptions to the deemed assignment restrictions to allow for the conduct of ordinary partnership business and a well-drafted exculpation provision that requires the landlord to look solely to the income and assets of the tenant entity, not the individual equity partners.

There is, however, a great deal of room for error in how this language is drafted.

I can also guaranty that this provision will be the primary focus of every equity partner in such partnership.

You will never be lonely for partnership friends if you follow these three suggestions when crafting your lease partnership provisions:

Specify exclusions from deemed assignment. Make sure that it is not deemed an assignment or other transfer under your lease for you to do the following as long as it is done for a good business purpose: (a) changes in equity holders as the result of the termination, resignation, withdrawal, retirement, incompetency, bankruptcy or death of existing equity holders (or of any professional corporation or other legal entity in which the equity holder is the sole shareholder or beneficial owner), the admission of new equity holders or the reallocation of beneficial interests among the equity holders, (b) the acquisition of firm assets or additional professionals, (c) an assignment by an equity holder of his or her interest to a professional corporation or other legal entity in which the assignor is the sole shareholder or beneficial owner, (d) a change by the tenant entity from one form of legal entity to another or (e) the execution of a new partnership agreement or other governing agreement or dissolution and reconstitution of the tenant entity if required by law. Of course, as we have often said and part of a larger topic, every lease should provide exclusions for transfers that are part of “corporate transactions” (mergers, sales of stock or assets or other changes in control).

State the extent of the liability limitation. Your landlord should look solely to the income and assets of the tenant entity (including any security deposit) for the satisfaction of any right or for the collection of a judgment or other judicial process requiring the payment of money by the tenant entity in connection with your lease. This would include accounts receivable of the tenant entity and the ability of your landlord to seek to have any fraudulent conveyances set aside.

Your landlord may be required to name equity holders as a party in an action against the tenant entity to the extent required by applicable state law in order to obtain judgment or proceed against the tenant entity. This is acceptable as long as no money judgment can be enforced against the equity holders personally.

Specify exclusions from the liability limitation. Your lease should explicitly provide that your landlord will have no recourse for any of the tenant entity’s lease obligations (or any remedy with respect to the relationship of landlord and tenant) against any past or current equity holder or other employee, officer or director or any other business entities unrelated to the business (e.g., law or accounting) formed by such parties.

No recourse should mean that your landlord will not seek any monetary claims or personal judgments against, or levy upon the assets of, any equity holder (or such equity holder’s spouse, family or estate).

Specifically exclude from the income and assets of the tenant entity (i) all pension and retirement funds of the tenant entity for the benefit of equity holders and other employees, and (ii) any negative capital account of an equity holder, any unpaid obligation of an equity holder to make any contribution of capital to the tenant entity and any right which the tenant entity or any trustee or similar person may otherwise have on behalf of the tenant entity to require contribution from any of the equity holders to satisfy debts of the tenant entity in any bankruptcy, reorganization, or similar proceeding.

Affirmatively indicate and allow the distribution of profits to equity holders and in certain instances the diminution or return of capital contributions, all as part of your regular course of business.

Some landlords request that the claims of equity holders and other professionals and employees against the tenant entity be subordinate to any claims by the landlord against the tenant entity. This is unusual and we suggest strongly resisting such requirement. If you must agree to such a requirement, then the retirement funds and negative capital accounts referred to above should be excluded from the subordination requirement.

Get Smart - Hymie the Robot

If I were to have a “social robot” in my dotage (yeah, yeah, I know my dotage is here already), I would go with Hymie the Robot from Get Smart days. Good company to fend off the loneliness and if agents of Kaos show up, bullets bounce off him. Follow the suggestions above and your partnership provisions will be anything but chaotic.