For years, the manner in which law firms have held their leasehold real estate has followed a well-established route – the lease went into the names of a small number or, depending upon the size of the firm, all of the partners of the firm. The legal estate was vested in the first four named, with guarantees usually being given by the other equity partners. The property-holding partners would hold the lease on trust for the other partners in the firm under the terms of the part-nership agreement.
However, over time, the larger law firms developed service companies through which various services were provided to the law firm. These services included holding the leasehold real estate, the employment of staff, contracts with third-party suppliers, and other such matters. Usually, but not always, guarantees for the obligations of the service company would then be provided by some or all of the individual partners to the well-advised landlord. The partnership agreement, assuming there is one in the relevant case, provided that the property-holding partners or the guarantee-providing partners received a counter-indemnity from the other equity partners for the liabilities that they had assumed on behalf of the firm to the landlord. The landlord, however, would have no direct recourse to the partnership itself (not being capable of suit as a legal entity in its own right) or to the other partners individually. In the event of the need to enforce the obligations on the part of the tenant, he would proceed against the property-holding partners or guaranteeing partners who, in turn, would join in their equity partner colleagues for counter-indemnity.
