Plugging Loopholes

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Do you grant your tenants the option to purchase the leased premises? If you’re using a standard lease form to provide such an option, you might also be inadvertently giving the tenant an unexpected windfall: one or more months of free rent in the months after it exercises the option. Here’s a look at the loophole and how to plug it.   

In many states, the lease guaranty ends when the underlying lease ends. So, unless there’s language to the contrary, the guarantor is off the hook if the tenant holds over after the end of the term or renews the lease. That leaves you holding the bag for any tenant defaults that occur during the holdover or renewal term. The good news is that as long as you’re aware of this loophole, you can easily plug it by including the right language in the guaranty agre...

Before signing a lease with a partnership or corporation, get proof that the business is a valid legal entity and that it’s taken the necessary partnership or corporate action to allow it to enter the lease. Otherwise, you may have a hard time enforcing the lease. The risk: If the partnership or corporation was never legally formed and/or legally bound to the lease, the tenant will be able to walk away from the lease with impunity.

It happens to countless landlords, and sooner or later, it’s bound to happen to you. A tenant moves out at the end of the lease. You take possession of the property and discover that it’s in a totally unrentable condition.

The good news is that your lease probably requires the tenant to pay the costs of necessary repairs. The bad news is that this may not be enough to protect you.

The last thing any landlord wants is to allow a tenant to purchase the property while it’s in default. Unfortunately, that’s exactly what you might have to do if the purchase option clause in your lease contains a common loophole.  

One reason general liability insurance is so expensive is that landlords can be sued for money damages if an individual gets injured on their property. While there are lots of legal theories trial lawyers can rely on, the vast majority of personal injury cases against landlords involve one or more claims of negligence.

Guaranty agreements may cap how much the guarantor has to pay if the tenant defaults. For example, the agreement may say that $100,000 is the most the landlord can collect from the guarantor. If you include dollar caps in your own lease guaranties, just be sure that they exclude attorney’s fees, cautions a New York City leasing attorney.  

Granting rent concessions and abatements (which we’ll refer to collectively as “abatements”) has become standard operating procedure in these troubled times. But before you engage in the practice, check your lease for a loophole that can limit how much of a rent increase you can command later.

The Question: Does your lease provide for future rent increases based on the Consumer Price Index (CPI)? If so, you could end up getting b...

Litigation is a big hassle, and when you resort to it you want to be sure you collect as much as possible from tenants who have left the space and are no longer paying rent. But your lease may have a loophole that defaulting tenants can rely on to get a court to reduce or even eliminate their debt.

The nice thing about lease assignments is that you can always go after the original tenant if the assignee violates its lease obligations. At least that’s the common assumption. But if you modify the lease after the assignment, you could end up inadvertently losing your right to hold the original tenant responsible for the assignee’s lease violations. Here’s what you can do to plug this loophole.