Commercial Landlord Tenant

March 11, 2008 – Another victory for commercial tenants represented by the Law Offices of Thomas Weiss, P.C.

Special rights which are available to residential tenants are /not/ extended to commercial tenants, who are presumed to be sophisticated and negotiate leases at “arms-length”. There are different duties and obligations imposed on commercial tenants under the law. Consequently, it is important for commercial tenants to retain an attorney prior to entering into a lease agreement to represent its rights and protect its interests.

Our office has drafted and negotiated hundreds of commercial lease agreements and litigated all areas of commercial landlord/tenant matters in both the Supreme Court and the Civil and District Courts. Thomas Weiss, Esq. has successfully defended commercial tenants at trial and has successfully brought actions against landlords for specific performance of their lease obligations. His experience has provided commercial landlords and tenants with superior guidance, advice and representation in this highly specialized area of law.

Make a Legally Valid Contract

All you need is a clear agreement and mutual promises to exchange things of value.

Lots of contracts are filled with mind-bending legal gibberish, but there's no reason why this has to be true. For most contracts, legalese is not essential or even helpful. On the contrary, the agreements you'll want to put into a written contract are best expressed in simple, everyday English.

Most contracts only need to contain two elements to be legally valid:

All parties must be in agreement (after an offer has been made by one party and accepted by the other).
Something of value must be exchanged -- such as cash, services, or goods (or a promise to exchange such an item) -- for something else of value.

Does a contract have to be in writing? In a few situations, contracts must be in writing to be valid. State laws often require written contracts for real estate transactions or agreements that will last for more than one year. You'll need to check your state's laws to determine exactly which contracts must be in writing. But even if it's not legally required, it's always a good idea to put business agreements in writing, because oral contracts can be difficult or impossible to prove.

Let's take a closer look at the two required contract elements: agreement between the parties, and exchange of things of value.

Agreement Between the Parties

Although it may seem like stating the obvious, an essential element of a valid contract is that all parties must agree on all major issues. In real life, there are plenty of situations that blur the line between a full agreement and a preliminary discussion about the possibility of making an agreement. To help clarify these borderline cases, the law has developed some rules defining when an agreement legally exists.

Offer and Acceptance

The most basic rule of contract law is that a legal contract exists when one party makes an offer and the other party accepts it. For most types of contracts, this can be done either orally or in writing.

Let's say, for instance, you're shopping around for a print shop to produce brochures for your business. One printer says (or faxes, or emails) that he'll print 5,000 of your two-color flyers for $300. This constitutes his offer.

If you tell the printer to go ahead with the job, you've accepted his offer. In the eyes of the law, when you tell the printer to go ahead you create a contract, which means you're liable for your side of the bargain (in this case, the payment of $300). But if you tell the printer you're not sure and want to continue shopping around (or don't even respond, for that matter), you haven't accepted the offer, and no agreement has been reached.

But if you tell the printer the offer sounds great except that you want the printer to use three colors instead of two, no contract has been made. This is because you have not accepted all of the important terms of the offer. You have actually changed one term of the offer. (Depending on your wording, you have probably made a counteroffer, which is discussed below.)

When Acceptance Occurs

In day-to-day business, the seemingly simple steps of offer and acceptance can become quite convoluted. For instance, sometimes an offer isn't quickly and unequivocally accepted; the other party may want to think about it for a while, or try to get a better deal. And before the other party accepts your offer, you might change your mind and want to withdraw or amend it. Delaying acceptance of an offer and revoking an offer, as well as making a counteroffer, are common situations that may lead to confusion and conflict. To minimize the potential for a dispute, here are some general rules you should understand and follow.

How Long an Offer Stays Open

Unless an offer includes a stated expiration date, it remains open for a "reasonable" time. What's reasonable, of course, is open to interpretation and will vary depending on the type of business and the particular fact situation.

To leave no room for doubt as to when the other party must make a decision, the best way to make an offer is to include an expiration date.

If you want to accept someone else's offer, the best approach is to do it as soon as possible, while there's no doubt that the offer is still open. Keep in mind that until you accept, the person or company who made the offer -- called the offeror -- may revoke the offer.

Revoking an Offer

Whoever makes an offer can revoke it as long as it hasn't yet been accepted. This means that if you make an offer and the other party wants some time to think it through, or makes a counteroffer with changed terms, you can revoke your original offer. Once the other party accepts, however, you'll have a binding agreement. Revocation must happen before acceptance.

An exception to this rule occurs if the parties agree that the offer will remain open for a stated period of time.

Offers With Expiration Dates

An offer with an expiration date is called an option, and it usually doesn't come for free. Say someone offers to sell you a forklift for $10,000, and you want to think the offer over without worrying that the seller will withdraw the offer or sell to someone else. You and the seller could agree that the offer will stay open for a certain period of time -- say, 30 days. Often, however, the seller will ask you to pay for this 30-day option -- which is understandable, because during the 30-day option period, the seller can't sell to anyone else.

Payment or no payment, when an option agreement exists, the offeror cannot revoke the offer until the time period ends.

Counteroffers

Often, when an offer is made, the response will be to start bargaining. Of course, haggling over price is the most common type of negotiating that occurs in business situations. When one party responds to an offer by proposing something different, this proposal is called a "counteroffer." When a counteroffer is made, the legal responsibility to accept, decline or make another counteroffer shifts to the original offeror.

For instance, suppose your printer (here, the original offeror) offers to print 5,000 brochures for $300, and you respond by saying you'll pay $250 for the job. You have not accepted his offer (no contract has been formed) but instead have made a counteroffer. If your printer then agrees to do the job exactly as you have specified, for $250, he's accepted your counteroffer, and a legal agreement has been reached.

Even though a contract is formed only if the accepting party agrees to all substantial terms of an offer, this doesn't mean you can rely on inconsequential differences to void a contract later. For example, if you offer to buy 100 chicken sandwiches on one-inch-thick sourdough bread, there is no contract if the other party replies that she will provide 100 emu filets on rye bread. But if the other party agrees to provide the chicken sandwiches on one-inch-thick sourdough bread, a valid contract exists, and you can't later refuse to pay if the bread turns out to be a hair thicker or thinner than one inch.

Exchange of Things of Value

In addition to both parties' agreement to the terms, a contract isn't valid unless both parties exchange something of value in anticipation of the completion of the contract.

Consideration Defined

The "thing of value" being exchanged -- which every law student who ever lived has been taught to call "consideration" -- is most often a promise to do something in the future, such as a promise to perform a certain job, or a promise to pay a fee for a job. For instance, let's return to the example of the print job. Once you and the printer agree on terms, there is an exchange of things of value (consideration): The printer has promised to print the 5,000 brochures, and you have promised to pay $250 for them.

Gifts vs. Contracts

The main importance of requiring things of value to be exchanged is to differentiate a contract from a generous statement or a one-sided promise, neither of which are enforceable by law.

If a friend offers you a gift without asking anything in return -- for instance, offering to stop by to help you move a pile of rocks -- the arrangement wouldn't count as a contract because you didn't give or promise your friend anything of value. If your friend never followed through with her gift, you would not be able to enforce her promise.

However, if you promise your friend you'll help her weed her vegetable garden on Sunday in exchange for her helping you move rocks on Saturday, a contract exists.

Promises vs. Action

Although the exchange-of-value requirement is met in most business transactions by an exchange of promises ("I'll promise to pay money if you promise to paint my building next month"), actually doing the work can also satisfy the rule.

If, for instance, you leave your printer a voicemail message that you'll pay an extra $100 if your brochures are cut and stapled when you pick them up, the printer can create a binding contract by actually doing the cutting and stapling. And once he does so, you can't weasel out of the deal by claiming you changed your mind.

For over 140 contracts, forms, and worksheets that you'll use in starting and running your business, get Nolo's Quicken® Legal Business Pro. It also brings five Nolo best-selling business books together in one easy-to-use software package.

When Should a Landlord Hire a Lawyer?

In some situations, property owners can benefit from a lawyer’s help. Learn when to consult an attorney.

If, like many landlords, you own or manage only a few rental properties, you are unlikely to have a lawyer on staff or even “on retainer” (where you pay a lawyer in advance to handle routine questions and issues). Fortunately, you shouldn’t need to constantly consult a lawyer or even keep one in the wings, “just in case.” You do have to be able to recognize those situations when expert help is needed -- even if it's just for some advice and coaching.

Landlords are fundamentally no different than any other type of business owner -- they aim to make their business profitable while steering clear of liability. In certain situations, hiring (or consulting with) a lawyer to help you achieve these goals is a smart move. Here are some of the most common scenarios that will benefit from a professional’s review or help.

Evicting a Tenant

In most states, an eviction lawsuit takes much less time than regular civil cases. But in exchange for expedited treatment, landlords must follow highly detailed rules, from notifying the tenant of the lawsuit to filing the right papers and forms. In addition, because it’s the tenant’s home that’s at stake, many judges will set the bar very high when it comes to ruling in the landlord’s favor. Winning an eviction lawsuit, even one that you’d think is a slam-dunk, isn’t so easy.

Still, many landlords try to evict a tenant themselves, often with success. (For more on evicting tenants, see Nolo’s area on Evicting a Tenant or Ending a Lease.) But you may be better off hiring a lawyer if:

this is your first eviction
the tenant is fighting the eviction and has a lawyer
the tenant is an employee whom you're firing
the tenant is filing for bankruptcy, or
you must comply with rent control or housing program rules for eviction.

Being Investigated or Sued for Illegal Discrimination

You don't need a lawyer every time a prospect or tenant accuses you of illegal discrimination. In fact, landlords who diligently comply with fair housing laws can still get these accusations from prospects they reject or tenants they evict for legitimate business reasons. But if a prospect or tenant sues you for discrimination, or if HUD or a fair housing agency agrees to investigate a claim, you'll probably want to consult a lawyer.

HUD administrative law judges can award a civil penalty of $11,000 per violation for first-time offenders, in addition to actual damages, attorneys’ fees, and other relief. Your liability can be much higher if your case goes to court or you settle. Also, if you become the subject of a discrimination lawsuit or investigation, it can make the press and harm your business' reputation. A lawyer can help you resolve the dispute and end the investigation or lawsuit as soon as possible. (For more on housing discrimination, see Choosing Tenants: Avoid Fair Housing Complaints and Lawsuits.)

Sued for Injury or Illness

If a tenant or guest sues you and claims that she got hurt or sick because of your carelessness, you'll almost certainly want to hire a lawyer to defend you. Personal injury cases are typically high stakes, and personal injury lawyers know their way through these cases much better than you do. Also, you may find it difficult to confront a tenant who has suffered a serious loss, even though you believe you should not be held responsible.

Any lawyer you hire will be emotionally detached from the case and experienced in effectively negotiating these types of situations. Fortunately, if you have liability insurance and pay your premiums, your insurer should provide you with a lawyer to defend you against personal injury claims.

Sued for Major Property Damage

Tenants or guests may also sue you if they think that your failure to maintain the rental property caused damage to their property. For example, if you don’t maintain the roof and a leak occurs during a normal winter rain, soaking the tenant’s furniture, the tenant may look to you for compensation.

In situations like this, your liability policy would also kick in. When the claim is high, you may decide to refer the matter to your insurance company and take advantage of its obligation to provide a lawyer. When the claim is low, especially if it’s brought in small claims court, you’ll probably want to handle it yourself, but could still benefit from a coaching session of an hour or so.

Audited by the IRS or the State

If you learn that the IRS or your state tax agency will be auditing your return, you don't always have to hire a lawyer. For example, an audit in which an additional few thousand dollars of taxes is at issue probably isn't enough to justify the expense of a lawyer. But you'll probably want to hire a lawyer (or another tax professional) to help you with an audit when there's a lot of money at stake.

If you made a serious mistake on your taxes that the government hasn’t yet noticed -- for example, you didn't report certain income or you took deductions for which you're not entitled -- hiring a lawyer before the auditors uncover the mistake can help you avoid a potentially damaging and embarrassing situation. (To learn more about audits, see Nolo’s area on IRS Audits and Appeals.)

Defending Your Reputation

If a serious crime or accident occurs on your property, or if one of your employees makes headlines for an unflattering reason, your business could suffer from the negative publicity (on top of any lawsuit that may take place).

Especially if you're not used to dealing with public relations, you should consider talking with a lawyer about how to handle the press. The lawyer can advise you on what you should -- and shouldn't -- say, or speak for you, and perhaps recommend action you can take to draw positive attention to your property and business.

Anytime You’re Going to Court

Aside from evictions, personal injury, and discrimination lawsuits, you may need to go to court for one of a number of other reasons, either as plaintiff or defendant. For example, a former tenant may take you to housing or small claims court, claiming you wrongfully withheld the full amount of his security deposit. Or you may decide to bring a civil action against a contractor to get compensated for shoddy or incomplete work.If you're going to court, or if you're entangled in a legal dispute that may lead there, at the very least consider consulting a lawyer, even if it's just to get some coaching. Whether to hire a lawyer should depend on: the complexity of the situation, how much is at stake, your budget, your confidence in handling the matter (or part of it) yourself, and your experience (if any) with a similar matter in the past.

Changing Your Business Structure

You may decide your business would be better served as a limited liability company instead of as the S-corporation you've been running for years. Or, after operating as a sole proprietorship, you may want to get a partner involved. It's wise to consult a lawyer to discuss your options and what each one entails.

Depending on your choice of business structure, you may need to file certain documents with your state on a one-time or annual basis (which you can often handle yourself). Any decision regarding your business structure will have important tax and legal ramifications, which your lawyer can explain. (To learn more about the various business structures available, see Nolo’s area on Ownership Structures.)

Buying or Selling Property

Buying or selling property may be common, but it's filled with more complexities and legal risks than many people are aware of, especially if that property also has a business (such as a building full of tenants) that goes along with it.

A lawyer knows the steps and can walk you around common pitfalls, from negotiation to closing. For example, a lawyer can help resolve environmental or structural issues that come to light in an inspection report, and can commit the seller to removing liens, mortgages, judgments and tax levies to ensure you get "clean title" -- that is, ownership that's free of claims.

Dealing With Problem Employees -- Or Employment Problems

Employment issues can arise whether you manage a large staff or have just one person helping you with your business. If you need to fire an employee for a valid reason but are afraid the employee may sue you for discrimination, or if tenants complain that an employee is harassing them, even a quick consultation with a lawyer may help steer you away from legal trouble. (To learn more about employment issues, see Nolo’s area on Human Resources.)

Protecting Your Intellectual Property Rights

When surfing the Web, did you happen to find a company logo that's strikingly similar to the one you paid a graphic designer to create for you several years ago? Did you spot language on another landlord's website or marketing materials that looks eerily familiar? These types of issues relate to your business' intellectual property rights. If you try to enforce them on your own -- for example, by contacting the alleged offender about the apparent violation -- and get nowhere, consult a lawyer who's an expert on copyright and trademark issues.

For more on this topic, read Every Landlord's Property Protection Guide, by Ron Leshnower (Nolo).

Terminating a Lease or Rental Agreement FAQ

Learn how to give tenants proper notice to end a lease or rental agreement, or evict if necessary.

What are the rules for returning security deposits?

Landlords may make deductions from a tenant's security deposit, provided they do it correctly and for an allowable reason. Many states require landlords to provide a written itemized accounting of deductions for unpaid rent and for repairs for damages and necessary cleaning that exceed normal wear and tear, together with payment for any deposit balance.

The deadlines vary from state to state, but landlords usually have a set amount of time in which to return deposits, usually 14 to 30 days after the tenant moves out -- either voluntarily or by eviction. (See Chart: Deadline for Returning Security Deposits, State-by-State.)

(If your landlord is withholding your security deposit, see Get Your Security Deposit Back.)

What happens if a tenant breaks a lease?

As a general rule, a tenant is bound to the length of the lease unless the landlord significantly breaks the law or violates its terms -- for example, by failing to make necessary repairs, or by failing to comply with an important lease clause. A few states have laws that allow tenants to break a lease because of health problems or a job relocation that requires a permanent move. Federal law and many similar state laws allow tenants who enter active military service and related government positions to terminate a lease early.

A tenant who breaks a lease without good cause will be responsible for the remaining rent due under the lease term. In most states, however, a landlord has a legal duty to use reasonable efforts to try to find a new tenant -- no matter what the tenant's reason for leaving -- rather than charge the tenant for the total remaining rent due under the lease.

When can a landlord legally terminate a lease to end the tenancy?

A landlord may legally terminate a lease if a tenant significantly violates its terms or the law -- for example, by paying the rent late, keeping a dog in violation of a no-pets clause in the lease, substantially damaging the property, or participating in illegal activities on or near the premises, such as selling drugs.

A landlord must first send the tenant a notice stating that the tenancy has been terminated. State laws set out very detailed requirements as to how a landlord must write and deliver (serve) a termination notice. Depending on what the tenant has done wrong, the termination notice may state that the tenancy is over and warn the tenant that he or she must vacate the premises or face an eviction lawsuit. Or, the notice may give the tenant a few days to clean up his or her act -- for example, to pay the rent, or to find a new home for the dog.

If the tenant fixes the problem or leaves as directed, no one goes to court. If a tenant doesn't comply with the termination notice, the landlord can file a lawsuit to evict the tenant. For more information, see How Evictions Work: Rules for Landlords and Property Managers.