Common misconception: Leasing to a foreign business is no different from leasing to a U.S. business. Truth: Leasing to a non-U.S. business raises special legal considerations. The problem is that standard boilerplate leases aren’t designed for—and thus frequently fail to address—these challenges. Here are five common pitfalls of leasing to non-U.S. tenants and how to avoid them.
Pitfall: You may be unable to enforce lease payment obligations and court judgments against tenants who keep their assets outside the U.S.
Solution: Before signing the lease, confirm that the tenant keeps adequate assets in the U.S. and add lease language expressly requiring the tenant to maintain U.S. assets at no less than that level during the lease term.
Pitfall: The same risk regarding the lack of U.S. assets applies when the tenant’s guarantor isn’t from the U.S.
Solution: There are three basic options:
Pitfall: You may be unable to serve notices or bring eviction or court actions to enforce the lease if the tenant’s legal representatives are all located outside the U.S.
Solution: Require the tenant (and guarantor) to appoint one or more local “agents” authorized to accept notices, service of process, and other legal documents on their behalf.
______________________________________________________________________________
Pitfall: Non-U.S. tenants may claim that the lease is governed by non-U.S. law and try to make you go to their home country to sue them.
Solution: You should be sure you can rely on U.S. law and courts to adjudicate lease disputes by addressing the issue in three lease provisions:
Pitfall: If the non-U.S. tenant is a government entity rather than a private business, you face the additional concern of a federal law called the Foreign Sovereign Immunities Act (FSIA), which bans private lawsuits against foreign governments.
Solution: There are two ways you can get around the ban and sue a tenant protected by the FSIA. The first is where the tenant’s government waives its FSIA immunity. Consequently, you should include a lease clause clearly indicating that the tenant is waiving its immunity.
The other way around the FSIA private litigation ban is when the lawsuit is allowed under an exception to FSIA immunity. For a commercial lease, the key FSIA exception is the one allowing for lawsuits in disputes flowing directly from “commercial activity” the foreign sovereign conducts in the U.S. Courts have consistently recognized entering into a commercial lease to be the kind of “commercial activity” triggering the exception.
The catch: For the waiver to be enforceable and the commercial activity to apply, the person who signs the lease on the sovereign tenant’s behalf must have authority to bind the sovereign. This can be tricky to prove because of the split among courts in what constitutes “authority” under the FSIA: