Tenants Caught Between a Commercial Leasing Rock and a Hard Place.

by Robert J. Smith on August 4, 2013

When presented with a lease for a commercial space, a landlord will frequently try to box a tenant into an unworkable situation in the case of Landlord’s subsequent sale or transfer of the property. Landlords do this by including clauses absolving both Landlord and its successor from liability for Landlord’s acts or omissions. Tenants and their counsel have dozens or even hundreds of clauses to review, and without correct oversight by tenant’s attorney, these problematic clauses, which may be in different locations in the lease, could slip through the cracks to tenant’s detriment.

For example, a lease recently presented to me included the following clause:

“In the event of the sale or other transfer of the building or any part thereof which includes the Demised Premises, the seller or transferor shall be and hereby is automatically and entirely released and discharged from and after the date of such sale or transfer, of all liability for the terms of the Lease to be performed by the Landlord.”

We’ll call this provision the “Rock”. OK, so you can’t go after the Landlord. But at least you will have the opportunity to go after the Successor Landlord, right? Not so fast. That same lease included this provision:

“Successor Landlord shall not be liable for any act or omission by Landlord under this Lease prior to such transfer, nor shall the Lease be subject to any offset, defense or counterclaim arising prior to such transfer.”

Let’s call this provision the “Hard Place”. So we see that the “Rock” takes the Landlord off the hook for liability for its acts or omissions under the Lease, while the “Hard Place” takes the Successor Landlord off the hook for Landlord’s acts and omissions under the Lease. The Tenant could be stuck between the “Rock” and the “Hard Place” with nowhere to turn in the event that some act or omission by the Landlord has caused damage to the Tenant. The Tenant’s attorney must be aware of this issue and address these doubly damaging clauses with the Landlord’s attorney in order to prevent the Tenant from being stuck with, and therefore liable for, for things that would otherwise have been the Landlord’s responsibility.

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