Facts Ted Johnson is a real estate manager and investor. Nearly twenty years ago
ID: 431709 • Letter: F
Question
Facts Ted Johnson is a real estate manager and investor. Nearly twenty years ago, Ted embarked on a partnership with Karla Jones to improve and operate an office building in New Haven, Connecticut. The building and land are owned by James Jason. James gave Ted and Karla a twenty-year lease. At the end of twenty years, the lease would terminate and the property would revert to James. Pursuant to their partnership agreement, Ted and Karla each provided 50 percent of the capital for improvements of the office space and received 50 percent of allocable net profits. Ted has successfully managed the building and during the past twenty years has accumulated some additional capital. Six months before the twenty-year lease was scheduled to expire, he and James had dinner together. Indicating how pleased he had been with Ted’s management skills, James offered to lease the property for another twenty-year term and mentioned the idea of knocking down the present structure and building a small mall. In light of the recent building of luxury condominiums and exclusive restaurants in the neighborhood, the development of a mall appeared to be a sound idea. Though he no longer needed Karla’s capital for the project, Ted suspected that Karla would be interested in participating in the mall development. However, it was not clear whether James made the offer to renew the lease solely to Ted or to the partnership. Because Karla had not been invited to dinner and her name had never been mentioned, Ted believed that the offer was made solely to him.
Social, Policy, and Ethical Considerations
1. DoesTed have an ethical responsibility to inform Karla of the opportunity to renew the lease?
2. Does it matter that the renewal offer for the long-term lease was initially raised in a dinner conversation between Ted and James?
3. Should Ted befree to sever relations with Karla with regard to the property? Consider that Ted has managed the property and no longer needs Karla’s capital. What competing social values does his dilemma involve?
Explanation / Answer
1. Yes, Ted shall inform Karla of the opportunity to renew the lease. This is ethical responsibility.
2. No it does not matter much as Ted was present and the offer obviously had to be conveyed to Ted.
3. Ted is indeed free to sever relations with Karla if he thinks he alone has managed the property better and does not need Karla’s capital. However ethically and socially it’s a difficult and wrong practice to do that and in business terms it’s a profitable actions or decision.
The social values will haunt Ted for sure as they had done business together for past 20 years and they should stay together. The role of both the partners cannot be equal and if unequal should not mean that Ted shall part away just because he does not need Karla anymore.
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