Corporate real estate: when is a Deal a Deal?

Misinterpretations about the lease and its parameters are a common occurrence between tenants and landlords. In order to minimize some of these potential conflicts, here are a few important rules and guidelines to follow to make sure your Deal is a Deal....

Almost all commercial leases fall within the "Statute of Frauds", which requires that obligations of both parties must be in writing in order to be enforceable.

The writing must be specific as to the obligations of the parties thereto, as well as complete within itself, without the requirement of other documents, in order to be enforceable by either party according to its terms. These enforceability issues are among the many reasons that each party to the lease should have a fully executed lease document in its possession.

The "in writing" requirement will almost always apply to proposals and counter-proposals which are common during lease negotiations. Even though verbal commitments to terms and conditions will generally be unenforceable, verbal negotiations are often unavoidable and common in the business.

With regard to written offers and counteroffers, it is commonly accepted that in order for an offeror to be bound by an offer, it must be accepted in its entirety, (basically a mirror image of the offer must be accepted by the offeree). Anytime a counter offer is made, the preceding offer is considered void and not enforceable against the offering party.

Time periods between offers may also become significant should a dispute arise. A time period in which the offer is open for acceptance should always be included in the offer. If an offer fails to include a deadline for acceptance, and a dispute arises regarding the offer, the courts will assign a reasonable time period to the offer, which reasonableness can vary greatly depending on the circumstances. Therefore to avoid unfavorable interpretations, time periods should always be included in offers.

Another practice that is rarely followed, but that could have significant consequences, is verification of authority of the parties executing the lease document. There are legal consequences that could result from the lack of authority of a person executing the lease document. One of the obvious results is that the lease could be considered unenforceable against the entity due to the fact that the signer did not have authority to bind the company.

One way to avoid this situation is to have corporate resolutions authorizing certain individuals to execute documents on behalf of the corporation, which resolutions can be broad so as not to require a new document each time a transaction is entered into. Another less obvious reason to insure that documents are properly executed is that the officer of a tenant could be exposed to personal liability under the lease document. Often with smaller businesses, the principals believe that the corporation is duly organized, authorized to transact business, and in good standing with the state. Sometimes this is not the case. Before executing a lease, the tenant should verify with the Secretary of State, corporations division, that the entity has been duly organized, is in good standing, all fees have been paid to date, and the entity name is correct. Some courts have held that because the entity did not exist, or was not in good standing, that the principal executing the lease could be personally liable for the obligations under the lease.

These are just a few of the many issues upon which the validity of a lease may hinge. Always remember to 1) put everything in writing ,2) date it, and 3) make sure any person signing is authorized to do so. These few steps should help to make sure your Deal is a Deal!

Pete Frame is a freelance writer and retired real estate agent.