Parties must consider numerous issues when entering into commercial lease agreements. Such considerations encompass everything from the express and implied duties of each respective party to the remedies afforded to each party in the event of a breach. This blog post is Part I in a series of posts providing an overview of important considerations for commercial lease agreements. Part I discusses mandatory and suggested commercial lease agreement terms and the legal duties and obligations of the parties involved.
Mandatory and Suggested Terms for Commercial Lease Agreements:
First, a lease of commercial property is an interest in real estate and, as such, any lease agreement for a term of more than 1 year is not valid unless there is a writing signed in the presence of two subscribing witnesses. Fla. Stat. § 689.01. However, a witness need not be a disinterested party to be a qualified subscribing witness. Ross v. Richter, 187 So.2d 653, 654 (Fla. 2d DCA 1966). When the lessor or lessee is a corporation, the corporate entity may execute the written lease agreement by sealing it with the “corporate seal and signed in its name by its president or any vice president or chief executive officer.” Fla. Stat. § 692.01.
At a minimum, a written commercial lease agreement must include the following terms: (1) name of the parties; (2) specific description of the property; (3) term of the lease; (4) provision for rent payment; (5) signature of the parties; and (6) words of mutual agreement indicating the intent of both parties to create a lease contract. There are various additional terms that parties should consider including within a commercial lease agreement even though they may not be required by law. These include, but are not limited to, the following: (1) adjustments in rent for multi-year leases; (2) tenant use restrictions; (3) landlord and tenant expense allocation for certain services and repairs; (4) setting parameters for allowable tenant alterations, if any; (5) indemnification and hold harmless clauses; (6) assignment and subletting; (7) insurance requirements of the parties; (8) remedies for late or missed payments; and (9) recovery of attorney’s fees and costs for breach by either party. Leaving out crucial terms such as these may result in unnecessary litigation.
Duties and Obligations of the Parties:
A commercial landlord has the duty to deliver possession of premises to the tenant at the time stated in the lease, and the tenant has a reciprocal duty to pay rent when owed. The landlord also has the duty to provide quite enjoyment of the premises, which assures the tenant that the landlord’s title is not defective and tenant’s possession will not be disturbed. The tenant has a reciprocal duty to surrender possession when the lease term expires. If the lease agreement obligates the tenant to pay ad valorem taxes, that becomes part of the consideration to use or occupy the property and is considered “rent.” Cascella v. Canaveral Port Authority, 827 So.2d 308 (Fla. 5th DCA 2002). The tenant also has a duty not to commit waste, which includes the tenant’s obligation to return the premises in substantially the same condition as when the lease began, notwithstanding normal wear and tear. Stegeman v. Burger Chef Sys., 374 So.2d 1130 (Fla. 1st DCA 1979).
The doctrine of caveat emptor, or “let the buyer beware,” remains applicable to leases of commercial property. Haskell Co. v. Lane Co., 612 So.2d 669, 671 (Fla. 1st DCA 1993). Lessees have a duty to inspect a property’s value and condition prior to entering into a lease, and the lessor cannot be held liable for any harm sustained by the lessee resulting from a defect existing at the time the lease agreement was entered. Id. This means that with commercial leases there is no implied landlord duty concerning the fitness and suitability of the premises. However, an express provision on fitness and suitability may exist within the terms of the lease agreement and, if so, those express terms would be enforceable.
There is one exception to the doctrine of caveat emptor, which is that a limited duty of implied fitness and suitability may exist when a commercial lease agreement involves a new building or the renovation of premises for a new tenant. In that instance, an implied warranty may exist that the completed structure will be suitable for the tenant’s use. See Levitz Furniture Co. v. Continental Equities, Inc., 411 So2d 221 (Fla. 3d DCA 1982). If a landlord were to breach this limited implied warranty, it generally would not constitute a constructive eviction, justify the tenant in abandoning the premises and/or allow the tenant to defend an action for unpaid rent on the basis of unfitness. Rather, the tenant’s remedy in this circumstance would be a breach of contract action against the landlord.
Stay tuned for Part II of this series, which will discuss additional issues concerning parties to commercial lease agreements.