United States: When Entering Into A Commercial Lease, Understand Your Obligations

Last Updated: May 24 2017
Article by Ian D. McVey

Entering into a commercial lease is a significant responsibility for both the landlord and tenant. Before a commercial lease is finalized, it is critical that both sides perform due diligence on the lease provisions and protections.

In City Electric Supply v. Johnny Murray – a lease dispute between an electric company and a family-run boat repair shop in North Charleston – the Court of Common Pleas granted the plaintiff's motion for summary judgment and ordered the tenant to be evicted from the property. The case featured several legal missteps by the defendant that can serve to inform parties who are entering into commercial leases.

Know the Terms of Your Lease Before Litigating

As displayed in City Electric, South Carolina courts will not provide relief for commercial tenants over claims that are not consistent with the provisions of their lease.

This dispute first appeared in magistrate's court when the plaintiff filed an application for ejectment based on the tenant's failure to pay rent over the previous five months. Following the filing of the application, the tenant retained counsel and filed an answer that denied the allegations, asserted various defenses and further submitted counterclaims related to alleged breaches of the lease by the landlord.

The ensuing court decisions provide several valuable lessons for any party to a commercial lease:

  • A common misperception among tenants is that withholding rent payment is an acceptable legal response when they are unhappy with the performance of the landowner. Under South Carolina law, the failure of a tenant to pay the agreed upon rent when due terminates the tenants right to occupy the property. If a tenant comes current with the rent payment after the eviction has been filed – as in City Electric – that does not bar the landowner from its right to evict the tenant. Once the lease is breached, back payments do not insulate or "save" the tenant. By statute, the rights of the parties are frozen as of the date of the issuance of the rule to show cause.
  • Generally, under a landlord-tenant relationship, there is no legal duty for the landlord to keep the leased premise in repair, particularly under the terms of an "as is" lease. Tenants and landlords would be well served to review the lease and make sure they understand exactly what each party's responsibility is under the lease.
  • It is also important to comply with the notice provisions of the lease. If the either party fails to give proper notice under the lease, they cannot come back and rely on the notice later. In our example, the tenant alleged that he had provided the landlord notice of its breaches; however, the lease was very specific as to the manner of notice and therefore the tenant's allegations fell on deaf ears.
  • The tenant alleged two similar causes of action: breach of the covenant of quiet enjoyment and constructive eviction. Each of these claims requires the same crucial element: That the tenant leave the premises. If the tenant remains on the premises, these claims will fail. South Carolina law does not permit a tenant to stay on leased premises without paying rent.
  • In this case, there was a utility easement that ran through the property, and what one could and could not do within the easement area was a large issue. The takeaway is, in a commercial lease, it is important for parties to do their due diligence and do not rely on a simple visual inspection. In this case, the tenant had a broker whose services he did not utilize. Had he asked his broker to do a little leg work, the tenant could have made a more informed decision as to the property before entering into the lease. If you have professionals helping you with a lease transaction, you need take advantage of them.

A carefully crafted lease is an important tool to protect both tenants and landowners. Each side should retain an experienced attorney who can perform due diligence on the terms of the lease. Once a lease is in place, each party must understand their stated responsibilities in order for the agreement to best protect their interests.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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