Tenants: Beware Continuing Liability
Unlike residential real estate where you have consumer laws to protect the buyer or lessee in a transaction, commercial real estate does not exactly fall under the same jurisdiction.
In a noncommercial real estate transaction, the agent is required by law to have myriad disclosures signed by all parties, and strict disclosure laws must be followed. In commercial real estate transactions, especially leasing, there are no specific disclosure laws or paperwork required.
It is customary for a dual agent to supply a cover letter suggesting the tenant have an attorney review the lease document, but that practice is not very consistent as the laws are nebulous for that as well.
A typical lease transaction takes place when the tenant contacts the landlord’s leasing agent for space to lease. From that point forward, the agent becomes the liaison between both landlord and tenant. In many cases the tenant believes his or her interest is being equally represented in the transaction because of the willingness of the leasing agent to get the deal closed and perhaps the agent is offering a concession from the landlord.
A level of trust is developed between the tenant and the landlord’s leasing agent, creating an ostensible agency relationship with the tenant. As the process moves forward with negotiations, the agent should make material disclosures to the tenant about all financial aspects of the lease and physical aspects of the space versus just glossing over it.
The leasing agent might not offer any information to the tenant that might jeopardize the deal, yet it might be to the tenant’s disadvantage to lease the space. The leasing agent will typically answer the difficult questions when asked but might not voluntarily offer information to assist the tenant in making the appropriate business decision to lease the space.
It is important to note that the landlord’s leasing agent has an ongoing listing agreement and long-term relationship with the landlord to negotiate multiple transactions, whereas the tenant represents only one transaction to the leasing agent and there is no agency between the tenant and the landlord’s leasing agent. It is common for tenants that are involved in dual agency negotiations to find out after the leases have been signed that there were errors, omissions and misunderstandings about the leases and, inevitably, costs to be paid by the tenant that were not anticipated.
Remember, the devil is in the details. Since there are limited consumer laws protecting the commercial tenant, it is incumbent upon the tenant to make sure that all the business points are covered and that the lease document offers protection to the tenant.
The landlord’s leasing agent will occasionally suggest to the tenant that some concessions are available, but only to the extent the landlord is already willing to offer them.
When commercial tenants have an awareness of this process and the law, they are better equipped to fend for themselves and will have a more favorable lease as the final result.
Just as in litigation, you would not feel comfortable having the plaintiff’s attorney representing you who also happens to be representing the defendant. There are big dollars and livelihoods at stake when leasing commercial property. Be sure to have someone on your side representing your interests exclusively, without conflict of interest.
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(as published in The Press Enterprise.)
[photo: ejp photo]
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