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When tenants go out of business landlords pay the price. One way to cushion the financial blow is to go after the tenant’s parent corporation for the unpaid rents and other revenues owed under the lease. But without an express lease guaranty, holding a corporation liable for the debts of its subsidiaries is a tough thing to pull off. Recognition of corporations as distinct legal entities that are separate from their subsidiaries and affiliates is a fundamental and longstanding principle of U.S. law. By the same token, insulation from liability is far from absolute.
Letting tenants hire contractors to perform improvements on the property they lease from you can be risky business. One of the principal dangers is that if the tenant fails to pay its contractors, they may seek to collect the debt from you—by placing a mechanic’s or construction lien on the property. Like many landlords, you may include language that expressly bars tenants from letting their contractors place a lien on the property and disclaims any liability for tenant’s debts to its contractors.
When it comes to liability for accidents and injuries to third parties on shopping center property, the lines are pretty well established. Absent lease language to the contrary:
Historically, boilerplate force majeure clauses have excused parties from performing lease obligations made impossible by unforeseen and unpreventable events, including government actions that make performance impossible. During the pandemic, retail and restaurant tenants across the country relied on the “government actions” language clauses to justify their failure to pay rent during the months state government shutdown orders prevented them from operating.
The tenant’s right of quiet enjoyment lasts for as long as the lease remains in effect. If the landlord does something to interfere with that right, the tenant is entitled to vacate and stop paying rent on the grounds of constructive eviction. But what happens when the original lease expires and the tenant holds over? Does the tenant’s right of quiet enjoyment end with the lease or continue through the holdover? Stated differently, can a tenant use constructive eviction as a defense for not paying rent during the holdover period?
When you set out to evict a tenant in default, delivering the actual notice may seem like a minor affair. But failing to follow the exact notice methods and deadlines set out in the lease can undermine your eviction suit. This is true even if the notice you do provide is loud and clear.
Standard commercial net leases require tenants to pay not just rent but a proportionate share of the owner’s property taxes. Of course, property taxes are apt to fluctuate over time. Accordingly, owners typically include an “escalation” or “adjustment” clause in the lease enabling them to pass along to the tenant any tax increases that occur over the course of the lease. But getting a tenant to accept responsibility for a tax escalation is just half the battle; you also have to ensure that the actual escalation clause in the lease is clear and specific.
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