10 Key Lease Terms in Commercial Landlord-Tenant Disputes
In a recent article, we discussed seven common issues in commercial lease litigation. In that article, we discussed issues like non-payment of rent and efforts to terminate that frequently lead to disputes between lessors and lessees.
While there are many different types of commercial lease disputes, disputes between landlords and tenants will often implicate the same types of contractual provisions. For example, here are 10 lease terms that frequently come into play in informal settlement negotiations, alternative dispute resolution (ADR) proceedings and litigation:
1. Leased Premises, Use and Exclusivity
Many lease disputes arise out of disagreements regarding the definition of the leased premises and the tenant’s rights of use and exclusivity. These foundational provisions of commercial leases present a variety of potential issues, particularly when they are not well-drafted and leave contingencies unaddressed. Inevitably, issues that the parties overlook when negotiating these provisions will come to pass, and then the parties will be forced to reconcile their differing interpretations or preferences through formal or informal dispute resolution efforts.
2. Breach and Cure
A contractual breach is the underpinning of virtually any landlord-tenant dispute arising under a commercial lease agreement. Commercial leases typically identify certain acts or omissions that constitute breaches while leaving others less well-defined. Depending on the nature of a breach, it may or may not present an opportunity for cure.
While some breaches are fairly transparent, it is not unusual for commercial landlords and tenants to disagree over whether a breach has occurred. Likewise, disagreements about whether the tenant has a right to cure—or has successfully cured a breach—will frequently lead to disputes as well.
3. Representations and Warranties
Landlords and tenants will both typically make certain representations and warranties in a commercial lease. Allegations of misrepresentations and omissions can either lead to disputes or give rise to additional claims or counterclaims in commercial lease litigation. In some cases, implied warranties may apply as well, and when they do, these can also play a central role in defining the scope and trajectory of a landlord-tenant dispute.
4. Limitations of Liability
Limitation-of-liability clauses do exactly what their name suggests—they limit one party’s exposure to liability arising out of the commercial leasing relationship. As with most commercial lease clauses, these clauses tend to favor the lessor, though a thoroughly negotiated lease should include reasonable liability protections for both parties. If a limitation of liability applies within the context of a particular dispute, this clause could play a key role in determining the viability of pursuing ADR or litigation, and this in turn could play a key role in determining how both parties approach their dispute.
Commercial leases often use limitation-of-liability clauses in conjunction with indemnification clauses to provide lessors with broad protections. An indemnification clause shifts liability from one contractual party to another (i.e., by shifting liability for premises liability claims to the tenant and providing that the tenant will “hold harmless” the lessor from any such claims). When a tenant engages legal counsel to negotiate a commercial lease, counsel should ensure that the lease’s indemnification clause is reasonable—which may include seeking to shift liability back to the lessor in certain circumstances (i.e., if a premises liability claim arises out of an issue beyond the tenant’s control). Poorly drafted indemnification clauses can leave important questions unanswered, and this ambiguity is ripe for a dispute.
6. Damages Caps and Waivers
In landlord-tenant disputes, contractual damages caps and waivers can also play a key role in determining the viability of proceeding with a particular claim. A damage cap limits a party’s liability exposure in the event of a dispute, while well-drafted waivers can insulate parties from liability entirely. Here, too, these commercial lease clauses most commonly favor the lessor, though tenants can (and generally should) negotiate reasonable protections.
Mandatory insurance provisions in commercial leases serve to protect both parties. If a party’s insurance (most likely the tenant’s insurance) covers a particular liability, then resolving any disputes related to the liability will likely involve dealing with the insurance provider. Insurance plays a key role in many landlord-tenant disputes, and confirming the available coverage will often be a first step toward evaluating the options that each party has available.
8. Mandatory ADR
Many commercial leases contain mandatory ADR clauses. These clauses specify that the parties must pursue mediation, arbitration or both before taking their dispute to court. While some exceptions may apply—for example, if the lessor needs to seek immediate injunctive relief—the obligation to mediate or arbitration will often play a central role in formulating each party’s approach and strategy.
9. Attorneys’ Fees
Commercial lease provisions that shift liability for attorneys’ fees to the non-prevailing party can play a central role in early strategizing efforts as well. If the costs associated with a dispute are likely to be substantial, this is a factor that both parties will need to consider. This is especially true if one party could end up footing the bill for the entire dispute. But, questions of interpretation can play a role here as well (i.e., if a commercial lease shifts liability for attorneys’ fees to the “prevailing” party but fails to define what this means), and disputes regarding these types of “boilerplate” provisions can themselves lead to litigation.
10. Jurisdiction and Venue
Finally, when facing a commercial lease dispute, the lease’s jurisdiction and venue clauses can also play important practical roles. For example, if the leased premises are in Florida but the lessor’s headquarters are in another state, the costs of pursuing mediation, arbitration or litigation in the lessor’s home state (which is most commonly the selected venue) may merit consideration along with the other issues discussed above.
Do You Need a Lawyer for a Commercial Lease Dispute in Florida?
The commercial real estate lawyers at Edelboim Lieberman Revah provide experienced legal representation for lessors and lessees facing disputes in Florida. If you are facing a commercial lease dispute and would like to speak with a lawyer, you can call 305-768-9909 or contact us online for a confidential consultation.