In the Spotlight: Beware of Lease Disputes in a Declining Market

We have just experienced a rising, perhaps frothy, commercial real estate market for the past half-decade, resulting in ever-increasing rental rates throughout much of the country. More recently, we have suffered increased gas prices that tax the budgets of all retail customers and appear to be reducing sales for many retailers.

An ongoing war, the threat of terrorism, and increases in interest rates all are reducing consumer sentiment and spending. The residential real estate market has already been hit, severely in some markets. Recession may be around the corner. Based on historical patterns, lease disputes rise in difficult economic times, and the parties ' especially tenants ' will even challenge the enforceability of the entire lease itself.

Carefully Consider Wording

When a determined party seeks to challenge a lease, sometimes even apparently simple lease provisions, such as the description of the premises, can present surprisingly complex issues and adverse results. While the insertion of a simple store number suffices in many leases, in others the parties must carefully consider and draft the description of the premises. An improperly drafted description of the premises can produce unintended results such as changes in the rent, the grant of unintended tenant rights, or even termination of the lease.

Consider the situation in which the landlord is leasing premises in a shopping center that is yet to be constructed. Under the law of virtually every state, in order for a lease to be binding, the lease must contain at least three key terms: the rent, the term of the lease, and a description of the premises. This description of the premises must be sufficiently definite so that a court can enforce the description ' the location and boundaries of the premises ' either by reference to the lease or by reference to some objective standard set forth in the lease.

Next month's column will discuss preconstruction lease language and the need for precise descriptions.

Jack Garson is the founder of the law firm Garson Claxton LLC in Bethesda, MD, and head of the firm's GC Development Advisors. For more information, contact him at 301-280-2700, [email protected] or visit www.garsonlaw.com.

We have just experienced a rising, perhaps frothy, commercial real estate market for the past half-decade, resulting in ever-increasing rental rates throughout much of the country. More recently, we have suffered increased gas prices that tax the budgets of all retail customers and appear to be reducing sales for many retailers.

An ongoing war, the threat of terrorism, and increases in interest rates all are reducing consumer sentiment and spending. The residential real estate market has already been hit, severely in some markets. Recession may be around the corner. Based on historical patterns, lease disputes rise in difficult economic times, and the parties ' especially tenants ' will even challenge the enforceability of the entire lease itself.

Carefully Consider Wording

When a determined party seeks to challenge a lease, sometimes even apparently simple lease provisions, such as the description of the premises, can present surprisingly complex issues and adverse results. While the insertion of a simple store number suffices in many leases, in others the parties must carefully consider and draft the description of the premises. An improperly drafted description of the premises can produce unintended results such as changes in the rent, the grant of unintended tenant rights, or even termination of the lease.

Consider the situation in which the landlord is leasing premises in a shopping center that is yet to be constructed. Under the law of virtually every state, in order for a lease to be binding, the lease must contain at least three key terms: the rent, the term of the lease, and a description of the premises. This description of the premises must be sufficiently definite so that a court can enforce the description ' the location and boundaries of the premises ' either by reference to the lease or by reference to some objective standard set forth in the lease.

Next month's column will discuss preconstruction lease language and the need for precise descriptions.

Jack Garson is the founder of the law firm Garson Claxton LLC in Bethesda, MD, and head of the firm's GC Development Advisors. For more information, contact him at 301-280-2700, [email protected] or visit www.garsonlaw.com.