What You Need to Know About Commercial Real Estate Lease Agreements: Part II
Reading Time: 5 minutes
This blog post is part II in a series of posts providing an overview of important considerations for commercial real estate lease agreements. Regardless of whether a landlord or tenant, there are numerous issues that all parties should consider prior to entering into a commercial lease agreement. Part I addressed mandatory and suggested commercial real estate lease agreement terms and the legal duties and obligations of the parties involved. Part II will discuss the enforceability of certain lease agreements, tort liability for both landlords and tenants, and the use of personal guarantees.
Statute of Frauds
The Statute of Frauds is a legal doctrine declaring certain contracts unenforceable if they are not in writing and signed by the party the contract is being enforced against. The Statute of Frauds applies to commercial leases that are for a period of one year or longer. Fla. Stat. § 725.01. In other words, a verbal agreement to lease property for any length of time greater than one year is void. Birnbaum v. Saloman, 22 Fla. 610 (1886).
There is one exception to the Statute of Frauds in commercial lease agreements, which is known as “part performance” and can make an oral lease agreement for more than one year enforceable. Poinciana Properties, Ltd. V. Englander Triangle, Inc., 437 So.2d 214 (Fla. 4th DCA 1983). The policy behind “part performance” is that when one party has relied on an oral agreement to the extent that it has partially performed under the agreement, the other party cannot void the oral agreement by relying on the Statute of Frauds. To show part performance in the commercial lease context, a tenant would need to demonstrate that it has been put into possession of the leased premises and has paid rent to the landlord which the landlord has accepted. Id.
Tort Liability and Exculpatory Clauses
A landlord is generally not liable for injuries caused by the tenant’s operations and activities within the leased premises. If a tenant is in complete control of the premises and an issue causing injury comes into existence during the term of the lease, the tenant is usually responsible. See Dabney v. Yapa, 187 So.2d 381 (Fla. 3d DCA 1966). It is reasonable to conclude that when a property is controlled or occupied by a tenant, the tenant should have known about the danger and corrected the condition to maintain the property in a reasonably safe condition for the tenant’s invitees, which includes the tenant’s employees. Cooney-Eckstein Co. v. King, 69 Fla. 246 (1915). However, there are limited scenarios where a landlord may be liable if whatever caused the injury was: (1) a violation of law; (2) a pre-existing defect in the premises; (3) an inherent danger; or (4) an item the landlord repaired but failed to do so properly.
A landlord may further insulate himself or herself from liability by inserting what is called an exculpatory clause, with clear terms, into the lease agreement. An exculpatory clause is a contractual provision relieving a party from liability resulting from a negligent act. While disfavored, they are enforceable in Florida. Muns v. Shurgard Income Props. Funds Lt. P’ship, 682 So.2d 166 (Fla. 4th DCA 1996). With that being said, an exculpatory clause will not insulate a landlord from liability when there is a violation of law. John’s Pass Seafood Co. v. Weber, 369 So.2d 616 (Fla. 2d DCA 1969). For example, if there is no basic firefighting equipment within the leased premises and a minimum amount of such equipment is required by law, then an exculpatory clause may not protect a landlord from injuries caused by fire. See Id.
Commercial leases are frequently signed on behalf of a corporate entity, presenting the need for a landlord to obtain a personal guarantee for additional protection against a tenant’s breach. Generally, a signature preceded by the word “by” and accompanied by language identifying the signer as a corporate officer (for example, By: President of XYZ) does not create personal liability for the signer who is not a specified party to the lease agreement. See Fairway Mortg. Solutions, Inc. v. Locust Gardens, 988 So.2d 678 (Fla. 4th DCA 2008). A person signing solely in his or her role as a corporate officer is only binding that corporate entity to the lease agreement.
Personal liability, however, may exist if a lease agreement provision contains specific language indicating personal liability or assumption of personal obligations by the person signing the agreement. Specific guarantee language may negate the signature as having been made in a representative capacity only. “To determine otherwise, would render the [specific] guaranty agreement [language] meaningless, as it does not make sense for the corporation to guarantee its own debt.” Robert C. Malt & Co. v. Carpet World Distribs., Inc., 763 So.2d 508 (Fla. 4th DCA 2000). A personal guaranty provides additional protection to a landlord because, in addition to the corporate entity, there is now an individual personally liable for the terms of the lease agreement. Consequently, commercial landlords should ensure they include express guarantee language within every lease agreement and make every effort to have the signor sign in his or her individual capacity as well. Stay tuned for Part III of this blog series, which will discuss a tenant’s claims, remedies and defenses when a landlord breaches a commercial lease agreement.