The combination of lengthy leases and high rents means even small leasing disputes can have significant financial consequences. Both landlords and tenants must fully understand their rights and obligations under lease agreements and commercial property law. Scarinci Hollenbeck, LLC can assist with all of your commercial real estate needs.
Owning and leasing commercial property can be extremely profitable. However, to maximize your revenue, you must not only understand your legal obligations, but also be proactive in reducing your risk of liability. Key commercial landlord responsibilities include:
- Negotiating and Enforcing Leases: A commercial landlord's chief responsibility is managing lease agreements, including both negotiation and administration of contracts. It is imperative to understand all lease provisions and how state commercial property laws may impact their interpretation. Accurate records of rent payments, property maintenance, lease violations, and tenant communications are extremely important. These records can prove invaluable should a dispute arise.
- Screening Tenants: Landlords must take steps to properly vet potential tenants. This process may include conducting background checks; reviewing business plans and financial statements; and verifying business licenses and insurance. Conducting proper due diligence out the outset can help avoid legal issues down the road.
- Maintenance: Commercial landlords generally have a duty to maintain certain aspects of the premises. This may include the structural integrity of the building, such as the roof, foundation, and exterior walls. It may also include common areas and HVAC systems, depending on the nature of the lease. Conducting regular inspections can help reduce the risk of unexpected problems and potential liability. Clear and upfront communication between the parties ensures fewer surprises down the line.
- Safety: Commercial landlords must provide a safe environment for tenants and their customers. Landlord obligations typically include, but are not limited to, implementing adequate security and fire safety measures; maintaining compliance with local building codes and regulations; ensuring the structural integrity of the building; and providing adequate lighting in common areas, to name a few.
- Legal Compliance: Landlords must fulfill all of their obligations under the lease. But they often have other legal issues to consider as well, include property insurance, environmental compliance, tax obligations, zoning regulations, and Americans with Disabilities Act (ADA) requirements.
How Commercial Property Law Impacts Disputes
While lease agreements largely govern the landlord-tenants relationship, commercial property law also impacts a landlord and tenant's legal obligations. For instance, if your space is open to the public, you will likely need to comply with Americans with Disabilities Act.
Commercial property law often plays a more significant role when disputes arise. Commercial tenants have the legal right to receive all services set forth in their lease. They may file suit to enforce its provisions. Unlike residential tenancies, courts will not disregard clauses that unreasonably favor landlords. Both parties are presumed to have equal bargaining power. Commercial tenants are not protected by a warranty of habitability. They are also not protected by an implied lease provision to recover legal fees in an eviction.
A common middle ground for landlords and tenants is the use of
Good Guy Guarantees.
Good Guy Guarantees often help avoid the need for litigation.
This provision in some lease agreements offers a clear path to
lease terminations.
It also limits the personal liability of a guarantor if certain
tenant conditions are met.
It affords the landlord the ability to find a replacement tenant, while the tenant is afforded a reduced financial risk.
While commercial tenants are generally considered more sophisticated than their residential counterparts, many jurisdictions do have laws that protect them. For instance, the Non-Residential Tenant Harassment Law in New York City protects commercial tenants from harassment by their landlords.
Under New York City Administrative Code §22-902, "Commercial tenant harassment" is defined as "any act or omission by or on behalf of a landlord that (i) is intended to cause a commercial tenant to vacate covered property, or to surrender or waive any rights under a lease or other rental agreement or under applicable law in relation to such covered property, and (ii) includes one or more of the following:
- Using force against or making express or implied threats that force will be used against a commercial tenant or such tenant's invitee;
- Causing repeated interruptions or discontinuances of one or more essential services;
- Causing an interruption or discontinuance of an essential service for an extended period of time;
- Causing an interruption or discontinuance of an essential service where such interruption or discontinuance substantially interferes with a commercial tenant's business;
- Repeatedly commencing frivolous court proceedings against a commercial tenant;
- Removing from a covered property any personal property belonging to a commercial tenant or such tenant's invitee;
- Removing the door at the entrance to a covered property occupied by a commercial tenant; removing, plugging or otherwise rendering the lock on such entrance door inoperable; or changing the lock on such entrance door without supplying a key to the new lock to the commercial tenant occupying the covered property;
- Preventing a commercial tenant or such tenant's invitee from entering a covered property occupied by such tenant;
- Substantially interfering with a commercial tenant's business by commencing unnecessary construction or repairs on or near covered property; or
- Engaging in any other repeated or enduring acts or omissions that substantially interfere with the operation of a commercial tenant's business."
When eviction is required, commercial landlords must satisfy numerous requirements and obtain a court order via commercial eviction summary proceedings. Under New York law, a commercial landlord must give 60-day notice to vacate to month-to-month tenants who have been in a leased space for more than one year but less than two years. Meanwhile, 90-day notice is required for tenants who have been in a leased space for more than two years. The landlord must also serve a written 14-day rent demand before starting a summary nonpayment proceeding in court.
Residential landlords must comply with additional laws that protect tenants' rights, which can also impact the eviction process. Missteps not only delay the process, but can also make it more costly.
Common Landlord-Tenant Conflicts
Commercial leases can be incredibly complex, which increases the risk of legal conflicts. Below are some of the most common sources of landlord-tenant disputes:
- Non-payment of rent
- Return of security deposit
- Assignments/subletting
- Unauthorized property alterations
- Lease violations
- Property maintenance
- Rent increases
- Lease renewals
- Property damage
- Holdovers
- Lease renewals/options
- Noise complaints
- Building code violations
- Commercial eviction
- Zoning laws
Open communication and respectful dialogue are essential for a successful landlord-tenant relationship. Establishing clear guidelines can also help prevent misunderstandings. When disputes do arise, it is often still possible to avoid litigation through negotiation, mediation, or arbitration.
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.
