Implied Warranty of Suitability In Commercial Leases

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 What Is Commercial Real Estate Law?

Commercial real estate laws are laws that regulate the transfer and sale of property for business use. Numerous commercial real estate lawsuits involve disputes regarding the sale and purchase of property for commercial use.

Commercial real estate laws also governs other issues, including:

For example, most state and local laws prohibit business activities in residential areas and vice versa. Because of these issues, commercial real estate laws also regulate how properties can be used in a certain area, or sector, of a town, versus other areas.

What Is a Commercial Lease?

Commercial leases are contracts that are used when commercial tenants rent spaces from landlords. Similar to other types of leases, commercial leases provide a commercial tenant with the right to occupy the space and conduct business activities for a specific amount of time in exchange for monthly rent payments made to the landlord.

Leases also serve as guides for both of the parties regarding their legal rights and responsibilities. For example, commercial tenants will form commercial leases with landlords when they rent business properties, which may include:

  • Office spaces;
  • Restaurants; or
  • Retail stores located in malls.

Depending on the type of commercial lease that the parties use, it will provide instructions including:

  • Which party is responsible for making repairs;
  • Which party is liable for paying the real property taxes on the space; and
  • Other responsibilities.

The terms and conditions of commercial leases are governed by a specific body of real estate laws called commercial lease laws. Commercial lease law is a complex area of law, so it may be helpful for an individual to consult with a lawyer before signing a commercial lease.

How Are Commercial Leases Different from Residential Leases?

Although there are numerous differences between commercial lease agreements and residential lease agreements, the biggest difference between the two is the nature of the property that is being rented. For example, the terms of a commercial lease agreement focus on the requirements of operating and maintaining a business on the premises.

Residential leases, on the other hand, are specifically drafted to ensure that tenants will live in habitable conditions and can enjoy their personal time and space while residing in that particular location. In other words, the terms of residential leases are created for the purposes of dwelling, whereas, the terms of commercial leases are geared towards the goal of running a successful business on the property.

Although both types of leases have some elements in common, including the covenant to pay rent, commercial leases provide less rights to business tenants and are much more complex.

Other differences between the two types of leases include:

  • Commercial leases typically have longer rental periods than residential leases;
    • For example, residential leases are usually created for one year or less, whereas, commercial leases are typically entered into for several years. This is so that the business does is not required to interrupt its operations by moving to a new location each year;
  • Business tenants have less rights than residential tenants because the law considers a business to be savvier than a general resident;
    • Because of this, commercial leases typically offer more flexibility and opportunities for negotiations;
      • For example, conditions, such as rent payment amounts, security deposit amounts, the length of the lease, accessibility, and others, can all be negotiated. Residential leases, in contrast, typically include boilerplate language;
  • Because residential tenants enjoy many more rights and protections under the law than commercial tenants do, it is a lot easier to evict a commercial tenant; and
  • It is more difficult to amend or break the terms of a commercial lease compared to a residential one;
    • Commercial leases also typically require higher rent payments.

What Is the Implied Warranty of Suitability?

Residential leases have an implied warranty of habitability that requires landlords to furnish livable quarters. The implied warranty of habitability is implied by law in all residential leases.

This means that the premises will be fit and habitable for human habitation and will remain fit and habitable throughout the duration of the lease. This implied warranty, however, has not been widely extended to commercial property leases.

Courts consider commercial tenants to be in better bargaining positions than residential tenants and are able to negotiate better leases. In addition, courts are concerned that if implied warranties are extended to commercial leases, the landlords will raise the rent and the tenants will pass those increased costs on to their customers.

Despite this issue, some courts have found that modern business leases, especially those for commercial office spaces, resemble their residential counterparts. Because of this, some courts will hold that an implied warranty of fitness or suitability for purpose is implied in commercial leases.

What Conditions Violate the Implied Warranty of Habitability?

The conditions that may violate the warranty of habitability may vary depending on the jurisdiction where the premises are located. In general, a landlord may violate this warranty by failing to provide access to:

  • Drinkable water and hot water;
  • Heat during cold weather;
  • Working electricity;
  • A smoke detector;
  • Working bathroom and toilet;
  • A sanitary premises, including the removal of insect or rodent infestation; or
  • Violations of building codes.

The tenant is responsible for repairing any uninhabitable condition that they caused.

Does the Implied Warranty of Habitability Apply to Commercial Leases?

In general, the implied warranty of habitability cannot be waived in a residential lease. Any lease provisions that are inconsistent with the right to live in a habitable premise may be voided by a court.

This means that renting an apartment “as is” may violate this warranty. In general, the implied warranty of habitability applies to:

  • Houses;
  • Apartments; or
  • Other types of dwellings that are rented for living purposes.

However, this warranty does not always apply to condominiums. In addition, it will, in general, not apply to commercial leases.

This implied warranty may be waived by a commercial landlord or commercial tenant in a commercial lease. Words such as, “as is” may be sufficient to waive this warranty.

What Is Required of the Warranty of Suitability?

Because the law that governs implied warranties in commercial leases is still developing, the law is not totally clear. Examples of issues that courts have held are sufficient to violate the warranty of suitability include:

  • Latent structural or physical defects in demised premises;
  • Persistent leakage of water through the:
    • roof;
    • ceiling; or
    • walls;
  • Serious defects in the sewer or drainage; or
  • Inadequate or defective:
    • air conditioning;
    • electric; or
    • other building service.

Examples of issues that courts did not find sufficient to find a breach of the warranty include:

  • Leaky bathrooms; or
  • Lack of humidity control in steam heated buildings.

Can I Waive the Implied Warranty of Suitability?

As noted above, the implied warranty of habitability in a residential lease, in general, cannot be waived. However, it may be contractually waived in a commercial lease.

The remedies for a breach of the warranty will vary by jurisdiction. It will also depend on factors such as whether the warranty was waived and whether the courts in the jurisdiction hold the warranty is implied in commercial leases.

Should I Consult an Attorney Regarding My Commercial Lease?

Laws governing landlords and tenants, both residential and commercial, are complex and vary by state. If you have any issues, questions, or concerns related to any type of lease, a real estate lawyer can help.

Your lawyer can advise you of the laws that apply to leases and the implied warranty of suitability in your state. Your lawyer can also represent you if any issues arise related to your rental property.

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