REAL ESTATE LAW
Commercial Real Estate Lease Agreements in Florida
A commercial real estate lease agreement in Florida gives a landlord the essential paperwork for entering a rental agreement with an individual or a commercial entity on the landlord’s property. Commercial real estate lease agreements, are generally more complex than a residential lease agreement and should be handled with caution during the negotiation phase. Prior to entering into a commercial real estate lease agreement it is important to really understand what you are getting yourself into. One example is that a commercial entity does not have the same consumer protection that individual residents enjoy. From implied and express duties of each respective party to the agreement or formalities associated with the agreement’s execution, there are aspects to a commercial lease agreement that you should be aware of.
Some important questions that the parties should consider before getting into a commercial real estate lease agreement are:
- Will the commercial tenant have exclusivity for his type of business on the property?
- Will the commercial tenant be allowed to sublease the premises?
- What options will the commercial tenant have in the event that the landlord’s building is not up to code and causes an undue hardship on the commercial tenants business?
Furthermore, a landlord will likely need assurances that during the term of the commercial lease, the tenant will comply with all municipality laws, not cause damage to the property from making modifications so as to negatively impact the landlord’s ability to rent to a future tenant and the tenant’s employees do not cause any kind of illegal disturbance on or around the premises. Florida’s laws are complex, this article will be a handy guide and provide both landlords and potential commercial tenants with an overview of what you should know about commercial real estate lease agreements in Florida.
Terminology that you should know in Commercial Lease Agreements
A commercial property lease is an interest in real property, for an agreed period of time. If the commercial real estate lease agreement is for a period of more than one year, the agreement must be signed in the presence of two subscribing witnesses, according to F.S. §689.01.
In contract law, there is a legal doctrine that requires some contracts to be in writing in order to be enforceable. This doctrine is known as the Statute of Frauds and requires a written contract signed by the party to be charged, that is the party whom the contract would be enforced against. In Florida, under F.S. §725.01, all leases greater than one year are void unless they are in writing. There is an exception to the Statute of Frauds, which can make an oral contract for a commercial lease greater than one year enforceable. This exception is called ‘part performance,” and comes up in circumstances where one party relied on an oral agreement to such an extent as to partially perform under the oral agreement. In such a case, the oral agreement may not be voided in reliance on the Statute of Frauds.
A lessor (also known as the landlord) is the person who grants the lease of real property to another party, the lessee (the tenant). The lessee pays the landlord or lessor for a right to use the real property for a certain period of time. Corporate entities can also take on the role of either lessor or lessee. A written lease may be executed by the corporate entity provided that the either the president, vice president, or chief executive officer sign the commercial real estate lease agreement and that the lease contain a corporate seal, according to F.S. §692.01.
The following terms should be included in a written commercial real estate lease agreement including: (1) party names (today, in commercial leases, most landlords also name the individual with the business entity), (2) a description of the subject property, (3) the lease term (can be in years or months), (4) the amount of rent payment, (5) language in the agreement showing a meeting of the minds that both parties intended to create a lease agreement for real property, (6) signatures of all parties to the lease and (7) security deposit. There may also be supplementary terms in the lease despite that they are not required by state law. Some of these additional terms may include, lessee use restrictions, rent modifications for leases greater than one year, lessee expense for specific repairs and/or services, indemnification clauses, subletting and assignment clauses, insurance requirement for lessee and lessor, and mediation/arbitration clauses. Furthermore, the lease may include a section called “Restriction on Use of Subject Property,” which include a report on what the business will be allowed to do on the leased premises. Usually, this section will require writing up a description of the type of business on the premises and the purpose of the business.
Exculpatory clause is also a term that comes up in a commercial real estate lease agreement. The purpose of an exculpatory clause is to relieve a party from liability of an injury that occurs on the premises as a result of a negligent act. Generally, the lessor puts in this clause into the lease to further insulate himself from any liability associated with the lease. Although, the courts are not supportive of this provision in lease agreements, they are enforceable if the clause is written in clearly into the agreement. However, an exculpatory clause will not be enforced when the injury occurred as a violation of law.
Personal guarantee is a term that is usually in commercial real estate lease agreements, and is generally a provision which contains used to attach personal liability to the person signing the lease usually the lessee. A lessee who is a corporate entity may have a corporate officer sign and only binds the corporation not the individual signing the lease.
Lessee Duties and Obligations for Commercial Real Estate Lease Agreements in Florida
One of the most fundamental duties for the lessee is the duty to pay rent. The tenant has a duty to keep the premises in considerably the same condition as the property was leased to the lessee. The tenant also must return possession of the property at the end of the lease term to the landlord unless the lease has been renewed automatically or by express agreement with the landlord. Just as with residential lease agreements the principle of caveat emptor, meaning “let the buyer beware,” applies in commercial real estate lease agreements. Lessee’s must inspect the property before executing the lease so as to be aware of any condition on the property that may impair the value of the property. Lessor cannot be liable for a defect on the property that existed at the time that the parties entered into the lease agreement if the lessee did not comply with his duty to inspect the property before entering the lease.
However, there is an exception to the application of caveat emptor, that when the commercial lease involves a new building, the lessor has a limited duty of implied fitness where an implied warranty exists that the building is appropriate for the lessee’s use. In a situation where a lessor or landlord has breached the implied warranty, the lessee or tenant is justified in abandoning the premises or allowed to defend an unpaid rent claim based on unfitness of the premises.
Lessor Duties and Obligations for Commercial Real Estate Lease Agreements in Florida
The lessor’s most essential duty is to deliver possession of the property to the lessee on the date stated in the lease. The duty of quiet enjoyment, provides that the landlord is the proper title owner of the property and there will be no disturbances in the lessee’s possession of the property. Generally, a lessor is not liable for injuries that result from the lessee activities on the leased premises where the lessee has complete control of the premises. The common assumption is that the lessee should be aware of danger on the premises and should make reasonable efforts to maintain the premises in a safe condition for invited licensee’s.
There are several situations where a lessor or landlord may be liable if the cause of the injury was a law violation, a defect on the premises that existed at the time the lease entered into, an inherent danger, or an improper repair by the landlord.
Lessee’s Claims, Defenses, and Remedies for Breach by Lessor for Commercial Real Estate Lease Agreements in Florida
A lessee or tenant can bring an action for breach of the lease against the lessor or landlord for general damages. General damages are calculated by the difference in the market value of the remaining lease term from the value of rent for the remaining term. In a situation where the lessor takes possession of the premises wrongfully and without legal process, the lessee can bring a suit for detainer and/or unlawful entry, under F.S. § 82.01. When a lessee is wrongfully evicted, the lessor must return the lessee’s security deposit and any interest earned.
If the lessor’s wrongful act denies the lessee’s possession or disrupts the use and enjoyment of the premises, the lessee may have a claim against the lessor for constructive or actual eviction. Lessee’s who experience a wrongful eviction, can claim general damages and in certain cases may additionally claim lost profits and relocation expenditures. Punitive damages are rare, but if lessor’s actions are found to be malicious, fraudulent, willful, and constitute gross negligence, lessee may be awarded punitive damages.
Lessor’s Remedies for Breach by Lessee for Commercial Real Estate Lease Agreements in Florida
In Florida, the remedy of self-help by the lessor is strictly prohibited. This means that the lessor may not enter forcibly onto the premises leased by the lessee even in circumstances where the lessee has breached the lease. The lessor must use the law provided by F.S. §83.05 to obtain possession of the premises. Despite the fact that even if the commercial lease agreement contains an entry provision allowing the lessor to enter the property, courts will not uphold the provision.
There are three options available under Florida law that the lessor may use if the lessee breaches the agreement. First, the lessor may regard that the lease is terminated and take back possession of the premises for lessors own use. Second, the lessor may keep possession of the premises on lessee’s behalf and pursue a claim for general damages for any amount not recoverable from renting the premises to a new tenant. Finally, the lessor can do nothing and wait to bring suit against the lessee for any future rent that becomes due or any other method provided for in the lease such as an accelerated amount. General damages as a remedy for lessor are calculated by examining the difference between the lease agreement rent and any recovered amount by the lessor’s good faith attempt to re-rent the premises.
What is a Holdover Tenant?
A lessee becomes a “holdover tenant” when he refuses to leave the premises when the lease ends. There are four remedies available for the lessor if there is a holdover tenant. The lessor can get double the agreed upon rent per month if the lessee will not give up possession at the end of the lease, F.S. § 83.06. Consider the lessee as a trespasser and bring an action seeking damages for the reasonable rental value of the property. Another option is for the lessor to demand the rent to be increased from the original lease agreement. Lastly, the lessor can evict the lessee. The lessor/landlord can bring an eviction action against a lessee who has defaulted on rent payments after giving three days’ written notice.
Statutory Lien Remedy for Lessors
According to F.S. § 83.20, in all eviction actions, the lessee must deposit the amount in the complaint (the unpaid rent amount) into the court registry including any rent that has accumulated during the eviction action, except where the lessor’s defense is for satisfaction or payment. Under F.S. § 83.08, commercial lessors have a statutory remedy of a lien against property on the leased premises belonging to the lessee. Florida’s statutory lien remedy is only possible during the term of the commercial lease agreement and is extinguished upon the end of the lease. In order to enforce the statutory lien for owed rent, the lessor must bring a statutory distress for rent proceeding. If the lessor prevails, a “distress writ” will be issued by the court in favor of the lessor. Upon issuance of the distress writ, the lessor can have the sheriff serve an execute the writ against the lessee for the premises.
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