Commercial lease disputes can be disruptive to the businesses of both landlords and tenants. A landlord may be frustrated with the loss of rental income or the tenant’s breach of lease conditions. The tenant’s business can be harmed when a landlord does not fulfill requirements of the lease that are critical to the tenant’s operations. Unlike residential leases where non-payment of rent is often the main issue, many commercial disputes are related to a breach of some condition of the lease.
Courts interpret commercial leases very differently than residential leases. Tenants in residential leases receive protections of local ordinances and consumer protection laws. There is often an assumption in commercial leases that both parties are on equal footing or have a certain level of sophistication in negotiating lease terms. Commercial leases are therefore interpreted more strictly.
Here are four common disputes that often arise in commercial leases:
1. The tenant’s right to make alterations to the property
Tenants must often make alterations to the commercial space for their business to take full advantage of the lease. But what kinds of alterations are permitted? Prior permission from the landlord is typically required to make significant alterations. If prior approval is required, what are the conditions for approval? What happens if a critical alteration is denied by the landlord? Tenants should carefully review their lease terms if any alterations may be needed.
2. Whether the tenant receives reimbursement for improvements to the property
Lease agreements usually do not award credits to the tenant for improvements and alterations. However, tenants may raise the issue of expenditures for improvements as a claim in a court hearing when a dispute arises. If the tenant shows that the landlord breached a lease condition after investing in improvements, the tenant may seek damages for return of the investment.
3. Responsibility for property maintenance and payment of real estate taxes
Responsibilities for maintenance and repair vary widely from lease to lease and depend on how the lease is drafted. Also, many commercial leases place the responsibility to pay real estate taxes on the tenant. Tenants sometimes overlook these tax payment clauses when they are characterized as “additional rent” separate from the standard base rent.
4. Whether the parties waived ordinary legal rights in the lease
Both landlords and tenants in commercial lease can waive basic rights such as the right to a jury trial. Tenants in particular often agree to a “confession of judgment” clause which gives the landlord an immediate judgment without an opportunity to be heard in court. Another common right often waived is the ability to sue for lost profits when the tenant’s business is disrupted by an issue with the property.
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