Commercial Landlord Laws: An Introduction
As a property owner, understanding commercial landlord laws is imperative when deciding whether to lease property to an outside entity. Both you and your tenant must meet certain laws and guidelines in a commercial landlord-tenant relationship. For you, the property owner, these statutes assist in facilitating the promotion of business relationships, while also protecting your existing tenants. For the tenant, it provides information on how to appropriately take possession of leased property . The law helps out you and your tenant by establishing a contractual guideline for the lease of commercial property. Aside from the general guidelines of rental payments and the insured value of the property, commercial landlord laws typically cover landlord responsibilities for security deposits, marijuana use, disputes with tenants, rent collection issues, and commercial leases. Too frequently, landlord and tenant misunderstand their obligations to one another in the commercial context.
Duties and Protections of Commercial Landlords
Commercial landlords have legal rights and responsibilities to their tenants, as well as to third parties and the public in general. Most importantly, commercial landlords have an obligation to provide dwellings that comply with safety standards. They also have an obligation to repair issues with the structure. If speedy repairs are impossible, the landlord must substitute temporary and then permanent repairs as soon as possible.
A commercial landlord’s other important responsibilities include the following:
Landlord’s responsibility to replace broken items.
The landlord must replace broken or damaged water pipes, electrical wires, fixtures and appliances. The landlord has a duty to maintain all common areas of the premises and provide heat, hot water, etc.
Restrictions On Landlord’s Entry.
Landlords have no right to enter a tenant’s premises without permission. A landlord who wants to legally enter a tenant’s premises must give advance notice.
As an added protection, New Jersey law specifically prohibits any person to unlawfully enter a leased commercial property without the landlord’s permission. Violators are subject to monetary penalties.
Tenant’s Rights and Landlord’s Responsibilities To Repair and Maintain.
A landlord’s obligations to repair and replace items in the premises do not absolve the tenant of his own duty to maintain the premises. While the landlord has the right to make necessary repairs, they do not have the right to unnecessarily interfere with the rights of the tenant.
Commercial Leases: What Are the Legal Requirements?
An important component of commercial landlord law in Michigan is the lease. The essential covenant of the lease contract is that landlord conveys possession of certain premises to tenant for a consideration of rent. Cuzintore Realty Co v Szollosy, 316 Mich 63, 74; also see, St. Joseph V Battani (Circuit Court, Wayne County, Mich., No. 97-970056-NZ) 238 Mich App 503; 606 NW2d 121 (1999). As such, a lease is merely a contract that conveys the lessor’s right of possession of property to the lessee for the considerations of money or other compensation. Any lease of commercial premises is to be construed as a conveyance of an estate in land. See, Warren v. Bowles, 309 Mich 186; also see Campbell v. Smith, 272 Mich 41.
As with all legally binding contracts, there are certain legal requirements that a commercial lease must meet in order to be valid and enforceable. See, Michaleun v. Skulski (1988), Mich.App. LC No. 0089054; also see, Township of Lee v Brown-Foster-Jefferson (1988), Mich.App.LC No. 1213434. Michigan landlords are prohibited under the statute of frauds from delegating authority to real estate brokers to rent real estate, without their own separate written agreement setting forth the terms and conditions of the rental contract. Such a contract would be void and unenforceable unless the authorized written agreement between the owner and the real estate professional is in writing and signed by the party leasing the property. See, MCL 566.108. The statute of frauds also applies to any residential or commercial lease for a term greater than one year. See, MCL 566.108.
While terms vary from lease to lease, there are certain provisions that should always be present. For example, a clear statement of the parties and terms such as the full legal names as opposed to nicknames; the amount of rent and method of payment; duration and term of the lease; the property description including physical address and legal description if available, and if any improvements to the property are included; any additional provisions. A Commercial Lease typically contains clauses that elaborate on the specific rights of the parties and issues. The most common related to commercial landlord law are: Additional clauses may include parking, fire safety laws, and other elements designed to protect your property.
Tenants: Dealing with Disputes
As a commercial landlord, you may find yourself in the unfortunate situation of having a dispute with your tenant. Whether it’s over unpaid rent, property damage, or lease violations, such disputes can be complex and often require legal intervention. This section provides an overview of the common legal processes and options available to landlords in handling disputes with their tenants.
Mediation
Before pursuing legal action in court, many landlords and tenants turn to mediation as a means to resolve the dispute. Mediation is a less formal process whereby both parties meet with a neutral third-party mediator who helps to facilitate a negotiation between the two. The mediator does not have the power to make a decision on the outcome of the dispute, but rather acts as a guide to help the parties reach a mutually agreeable resolution. Mediation is often a quicker, less costly, and confidential alternative to a dispute in court. The flexibility of mediation also allows the parties to craft solutions that a court might not have the power to order. For example, if your tenant has damaged the property, a mediator can help facilitate the negotiation of a payment plan to cover repairs. However, if a resolution cannot be reached through mediation and an agreement cannot be negotiated, the dispute may need to be resolved in court.
Court Proceedings
Should the dispute proceed to court, the specific process will depend on the nature of the case. However, the basic steps are generally the same. As the party suing, you are known as the plaintiff, and your tenant is the defendant. Once a lawyer has been engaged, the lawyer will prepare the necessary documents to begin the process, which may take the form of a notice, a claim against the tenant (such as for unpaid rent), or a notice to vacate. The notice period will vary depending on the situation, but the law requires a specific number of days before further action can be taken. The next step is to serve the notice on the tenant – this can be done in person by the plaintiff or a process server, or by mail. After the notice period has expired, you may have grounds to claim damages against the tenant, or even terminate the lease and seek recovery for any loss of sale from vacant premises. For an eviction process, it is essential that you absolutely follow the prescribed steps in the law. Otherwise, the entire procedure could fail and you’ll need to start all over again.
Litigation
In the event of a breach of the tenancy agreement by the tenant, the matter can also be taken to court for litigation. Possible claims against the tenant include damages for unpaid rent and for property damage, as well as an injunction to regain possession of the property. The remedy for the plaintiff will depend on the specific facts of the case and the remedies sought. Business disputes can be particularly hard to navigate because they involve more than just a landlord-tenant relationship. Because these disputes are often complicated, early legal intervention is critical to a landlord’s best chance at resolving the matter in an appropriate and timely manner. It is also worth noting that in the unfortunate event that the tenant files for bankruptcy, personal liability may not be immediately possible. This is particularly true where the tenant has borrowed heavily to finance the business. Given the legal complexities involved in landlord-tenant disputes, it is always a good idea to seek the counsel of a qualified commercial lawyer at the first sign of problems. This way, you will have a better understanding of your rights and obligations under the tenancy agreement, and you will have developed a plan of action to minimize losses and recover what you are legally owed from your tenant in as timely a manner as possible.
Evictions: Applicable Laws and Procedures
It’s not uncommon for the eviction process to differ for commercial landlords. In the case of commercial real estate, however, there are certain differences in eviction laws and procedures. While some of these differences may be significant, others aren’t necessarily that big of a deal, but are still important enough for landlords to be aware of. Typically, a commercial landlord or property manager will begin the process by issuing what is known as a "Notice to Cure". This essentially gives the tenant notice that they are not in compliance with the terms of their lease, which in most cases will demand that the tenant brings their rent up to date within a specified period of time or face potential eviction. If the tenant fails to comply, the landlord can move forward with the legal process. In many states, such as Ohio and Kentucky, commercial landlords must file an "affidavit and request for writ delivery" suit . This is similar to a residential eviction, but in this case, the landlord or property manager must provide an affidavit specifying the facts related to the demand for judgment. The lawsuit is filed with the clerk of the court, who is required to notify the tenant of the lawsuit by mail. The tenant then has the right to file an answer within a set number of days. If an answer is not received, a judgment in favor of the plaintiff (the landlord) will be granted, allowing the landlord the right to possession of the property returned to them through a court order. Of course, all landlords are required to comply with eviction laws and procedures in the state and municipality where they own property. However, because commercial properties are typically not considered a place to dwell, you must adhere to more strict rules in some states than in others.
Rent and Prices, and Laws That Regulate Them
Numerous jurisdictions have enacted rent control laws that can affect commercial lease arrangements, and it is thus important for landlords to be familiar with these. There is considerable variation from jurisdiction to jurisdiction, but the laws that apply to commercial rent control typically differ significantly from those that apply to residence or other non-commercial uses.
A common misconception is that rent control and pricing regulation only apply to multifamily residential units rather than commercial space. However, in some places the distinction between multifamily residential units and commercial real estate is not so clear. For instance, in some states, certain types of hotels and motels are being treated like multifamily housing and have been subjected to rent control laws. In some localities, occupancy by postsecondary institutions is also subject to rent control.
It is not uncommon, even in commercial contexts, to see a substantial degree of protection of tenant rights, and a significant limitation on the discretion of landlords to adjust rents and fees under lease agreements. States that have rent control may not be uniform in their approach to the issue, and municipalities within those states may devise their own local rules and regulations. This means that compliance relates to both state and local statutes regarding rent control.
A 2017 case called 400 Sherwood Avenue v. City of New York, for example, discussed the complexities of rent control in a multi-family building that was owned by a sub-entity of the landlord in a commercial setting. This case began when the City of New York filed suit against the landlord for violations of New York rent control law, which had been designed to protect low-income residents of the property. What the city found through its investigations was that the apartments in question were actually occupied by postsecondary students, which, under the law, apparently implicated an exemption from the restrictions of rent control. The owner claimed in his defense that he had no knowledge of which spaces tenants would use for residential or other purposes, and believed they were primarily commercial in addition to containing some residential units. Even though this case ended up being litigated, the situation generally demonstrates the significant nuances that can exist in cases where a lease agreement is being used to govern multiple types of occupancy.
Because of the complexity of regulations in many areas, there is no strictly defined allowance for what courts may or may not allow in these situations. When in doubt, companies that may be affected by rent control laws should be familiar with them in the jurisdictions where they operate.
Renovating Your Building in a Legal Way
Commercial landlords can update their knowledge of commercial landlord laws by consistently reading to stay informed of any changes to the laws. The law is not stagnant, but, rather, is constantly evolving with court decisions, new laws passed by the Connecticut legislature, or new decrees from the Connecticut Department of Consumer Protection. As a commercial landlord, one must keep up to date with all these changes in the law and be able to apply and implement them immediately. Failure to do so could open the door for future litigation, whether as a landlord or a tenant. By way of example, a change to the law in Connecticut that many commercial landlords may have missed, is the fact that as of October 1, 2013, no less than five individual bills were passed by the Connecticut Legislature, all of which modified existing laws and/or created new laws concerning Commercial Landlords and Tenants. For instance: Clearly, if one did not know of these changes, they would be operating under the old laws; and, ultimately, at their own peril as it relates to litigation against them. Consider also attending programs off-site that will update information on an ongoing basis, and through personal member organizations, including the Connecticut Business & Industry Association, the Connecticut Restaurant Association, the International Council of Shopping Centers and others. These organizations often conduct seminars and events concerning commercial leases and the laws, and provide an important networking opportunity for all sides under a commercial lease, including landlords and tenants. Again, I stress, where possible, to review your commercial lease with an attorney experienced in commercial landlord and tenant issues, who can also help update the lease to meet any changes in the law and help review what best practices should be implemented to ensure you are best protected. Finally, if you find there are gaps or outdated language in your commercial lease, ask your counsel about "Update Letters" which are maintained by some attorneys like myself, to internally keep track of changes in the law and offer them at a scalable rate to their clients to best protect your interests.
Conclusions: Commercial Landlord Tips
In this article we have discussed the complex web of commercial landlord laws and their importance in managing a commercial property. For landlords, operating within the bounds of these laws is not only about compliance but also about best practices for managing a property. Here are some best practices for commercial landlords: Establish a Written Lease Agreement. Should a dispute arise, a written lease agreement will be crucial for determining each party’s duties and obligations. Additionally, a clearly written lease agreement will help avoid confusion or arguments. Conduct Thorough Tenant Screening. Finding a reliable tenant is probably a commercial landlord’s most important task. Being thorough and screening a prospective tenant’s application and credit history can prevent costly, time consuming, and potentially litigation rife disputes in the future. Consider Health and Safety Violations. If a health or safety code violation results in a loss of rent, the landlord may be held liable. Before entering into a lease agreement and commencing a business, a commercial landlord should determine any potential health and safety risks and whether it is necessary to remediate those risks. Incorporate Lease Terms into Day-to-Day Operations. Depending on its complexity , a lease agreement may be difficult to comprehend. A commercial landlord must ensure that its staff understands and follows the terms of the lease agreement. Being consistent and conscientious with lease terms not only improves customer service, it may limit the landlord’s liability down the road. Don’t Make Assumptions. Managing a commercial property can be a complicated and time consuming endeavor. However, certain regulations and obligations must be followed. A commercial landlord cannot overlook compliance matters in order to speed up the process or simply because it makes good business sense. Parties often operate under certain assumptions which can result in conflicts arising down the road. Even if a party believes that its position is in accordance with the law, it is always good practice to consult a commercial real estate attorney to determine whether legal issues will arise based on such assumptions. While compliance with commercial landlord laws is something every property owner hopes to achieve, understanding such regulations can be an uphill battle. This article is for informational purposes only and should not be construed as legal advice.
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