When a business goes bust, or at the very least hits hard times, it is the commercial landlord that leased space to that business that often stands to lose in the form of missed rent payments and attempts to duck out on the lease altogether. Matters can get worse when the failing business tenant turns its wrath toward the landlord itself as the source of the business’ misfortunes.
It is not uncommon for business tenants to sue their commercial landlords on claims of misrepresentation and/or fraud relating to issues such as: the number of customers coming through a given area; the identity of other tenants in a common retail space; whether there will be exclusive use by a party (e.g. a coffee shop getting promises the landlord will not rent to other coffee shops); who has the responsibility to make repairs; or issues about other amenities or services.
A misrepresentation or fraud claim may seem totally without merit to you, the landlord, but it can cause major headaches and legal fees if the tenant is able to provide substantial basis for the claims. Here are three ways you can work to avoid future misrepresentation and fraud claims from commercial tenants.
Avoid Making Promises Not Included in the Lease
Potential business tenants of course frequently have numerous questions about the space they are considering renting, and commercial landlords want to give assurances for their potential tenants’ concerns, especially when the landlords take pride in maintaining and building those properties.
But giving a potential tenant your perspective on their ability to thrive in a given space can come back to haunt you when the tenant claims they were fraudulently induced to enter into the lease based on oral statements you made, even when you thought those statements were merely opinion or friendly predictions as opposed to contractual guarantees.
Thus, you should avoid making statements which could come off promises or guarantees which a tenant could later say was a fraudulent inducement.
Get all Material Terms in Your Lease Agreement (With an Integration Clause)…
Of course, you as the commercial landlord will want to make guarantees on terms of the contract, such as rent, duration, repairs, maintenance, common areas, and so on. And, if you do want to make further guarantees as a condition of commanding higher rent (i.e. an exclusive use provision), your tenant will certainly want to see that in the lease.
You should thus work with your attorney to include all material terms in the lease agreement, but also include an integration clause which makes it clear that all material terms of the agreement are indeed included in the lease, and that there are no other outside oral promises which contradict or otherwise alter the lease provisions.
With this signed provision in hand, your tenant will have a more difficult time later saying you made misrepresentations outside of the contract which could form the basis for a fraud claim.
…But Realize a Contract is Not a Shield For Fraud
All that said, a well-drafted commercial lease agreement with an integration clause will not act as a shield for fraudulent activity by the landlord to induce tenants to sign a lease. Courts will look beyond what is in the commercial lease agreement to determine whether a landlord did indeed take advantage of a tenant by making incorrect statements or withholding valuable information.
Certainly, an integration clause will help in avoiding such claims but understand that it is not a license to act unethically and courts will look beyond it when egregious behavior occurs.
Work With an Experienced Los Angeles Real Estate Litigation Attorney
Attorney Laine T. Wagenseller of Wagenseller Law Firm has published numerous articles on real estate law and works with individuals and businesses across Southern California in resolving real estate matters, including disputes arising from commercial leases. Contact Wagenseller Law Firm today to schedule a consultation in order to evaluate your situation and begin working towards a positive resolution.