WITNESSES Regarding Florida leases, always require two subscribing witness for both the landlord's and tenant's signatures (unless they are corporations when a corporate seal is a valid alternative). Therefore, one witness will not satisfy the two witness requirement! Subscribing witnesses are witnesses that are present when the document is signed. The witnesses do not have to be disinterested, so the landlord or its agents may be the witnesses to the tenant's signature. Failure to have two subscribing witnesses (or a corporate seal if the subject party is a corporation) may render the lease valid only for one year and then on a month-to-month basis thereafter in the event the landlord desires to sue the tenant for prospective (future) damages or rent. Part performance, such as the fact that the tenant takes occupancy or pays some monthly rent payments, does not "sanctify" the lease except in equitable actions. An action for damages or rent is not an equitable action. An eviction would lie whether or not the lease is properly witnessed.
PROPER PARTIES Regarding Florida leases, tenant's name(s) on the first page of the lease should contain only the legal name(s) of the tenant or tenants with the right to possession of the leased premises. Other responsible parties who do not have the right to possession should sign guaranty agreements. The signature area for the tenant should match the tenant's name on the first page of the lease. If two entities or persons appear on the "tenant" blank on the first page of the lease, both must sign separately on the signature page. Be certain that you use the correct signature blocks. For example, individuals who are intended to be personally liable should never sign their name in a representative capacity, like "Jim Smith, President" as the word "president" denotes that they are signing as an officer of a corporation. Some tenants, either due to confusion or bad intent, add titles to their personal signatures indicating that they are signing in a capacity other than personally. So, always look at the signature after it is signed. (I once had a case where a tenant signed "John Hancock" to the tenant signature block!) Never use "d/b/a" in the name of a tenant. This is dangerous and confusing! Since "d/b/a" is intended to indicate the tenant's trade name, it is better practice to have an express provision in the lease addressing the issue of the tenant's trade name. I have seen the tenant named as "Jim Smith d/b/a/ ABC, Inc." This makes no sense since both Jim Smith and ABC, Inc. are separate legal entities. Who has the right to possession of the leased premises? Who is liable under the lease? Sometimes I see "Jim Smith d/b/a/ ABC" where Jim Smith, shortly after signing the lease, forms a corporation named "ABC, Inc." and pays the rent for months as "ABC, Inc.." When sued, Jim Smith will argue that the landlord knew the responsible party was "ABC, Inc.." and not Jim Smith personally. I have even seen "XYZ, Inc. d/b/a ABC, Inc." - again this makes no sense. If there are two or more tenants named in the lease, be certain to provide that they are jointly and severally liable under the lease, otherwise, you must sue both and obtain service of process on both.
LIMIT LIABILITY REGARDING CONSENT With respect to Florida leases, always provide that if the Landlord's consent is required and such consent is denied, Tenant's sole remedy is to sue for specific performance and not damages. Landlords can soften the clause by providing that damages can be recovered if Landlord is found to have acted arbitrarily and capriciously and such arbitrariness and capriciousness is proven by clear and convincing evidence. The benefits of this kind of clause are obvious. For example, when the Tenant requests that the Landlord consent to an assignment or subletting and the proposed assignee or subtenant is "borderline" unacceptable, the Landlord is often coerced into consenting as the threat of a damage action is always present. The damage action could, within the range of possibility, excuse the Tenant from having to pay rent to the extent it would have been paid by the proposed assignee (or portion of the rent payable by the proposed subtenant), and, in the case of a Tenant trying to sell its business, require the Landlord to pay the Tenant's losses from, say, the inability to sell its business.
SETTLEMENT In Florida, when reaching a settlement with a tenant that results in a surrender of the premises, never give a "general release" to the tenant as it may act to release the tenant from indemnities and other responsibilities accruing prior to the date of surrender of the premises. For example, in Florida, the statute of limitations on torts, such as a "slip and fall" (as it is known in the lexicon of personal injury attorneys) is four (4) years. If a person were to slip and fall in an office or store premises and notify, say, the tenant but not the landlord, and the landlord then, within four (4) years after the fall, entered into a settlement agreement to take back the premises and release the tenant, such agreement may very well act to release the tenant and possibly its insurer from liability under the lease for the slip and fall. This result is not desired by the landlord and should be avoided by giving the tenant a "limited release", carving out any release of liability for indemnity and other liability not readily able to be discovered by the landlord at the time of the giving of the release.
AUDIT RIGHTS I suggest not giving tenants an audit right, but instead, giving them the right to dispute operating expenses if they exceed an initial threshold of say 105% of the prior year's operating expenses. If there is a dispute, the disputed item will be referred by the landlord to an independent certified public accountant or other appropriate expert. The decision of the expert will be final and binding on both parties. The non-prevailing party will pay the expert's fees unless the change is less than 5% of the disputed amount, in which event the tenant will pay the expert's fees. Finally, many landlords are now precluding any dispute rights if the statement of operating expenses is audited by an independent certified public accountant. The beauty of this system is obvious. No contingent fee auditors, competing management firms or owners will be engaged by the tenant to come into your office. If a landlord has 50 tenants, it eliminates having 50 different agents in your offices trying to audit your records. The system also narrows the inquiry to the disputed items and then, only after the initial threshold is met.
JURY TRIAL WAIVER Often, in states like Florida, where it is legal for contracting parties to waive trial by jury, landlords often fail to include the waiver in their contracts and guaranty agreements. Each should contain an express waiver of jury trial rights.
EXCLUSION FOR LANDLORD'S NEGLIGENCE If you are forced to exclude landlord's negligence or willful misconduct from tenant's indemnity, add "unless covered by the insurance tenant is required to maintain". In this way, even though landlord may be negligent, tenant's insurance to the extent required to be maintained by tenant will cover the loss. Please contact your risk manager or risk consultant for more information.
RECAPTURE CLAUSES IN FLORIDA If your Florida lease contains a recapture clause, it may be found to be unenforceable as repugnant when read together with provisions that give the tenant the right to assign or sublet with the landlord's consent. See the case of Petrou v. WIlder, 557 So.2d 617 (4th DCA, 1990). It stands for the proposition that where two clauses of a lease are repugnant to each other, specifically a clause that gives the tenant the right to assign or sublet where the landlord could not unreasonably withhold consent, and at the same time permits the landlord, upon receipt of the notice from the tenant, to terminate the lease, then the latter clause must fail as it negates the first. So in an attempt to avoid this result, it is suggested that the following language be inserted in front of the recapture clause, "Anything to the contrary in this Lease notwithstanding," With the addition of this phrase, it is expected that the recapture clause will not be repugnant with the clause giving the tenant the right to recapture, but will indeed make the recapture clause primary and paramount to the assignment/subletting right.
NOTICES If your attorney or agent gives the tenant a notice from the landlord, the lease should provide that such notice is deemed duly given as if prepared and executed by the landlord directly. There is a line of cases in states other than Florida that have ruled that notices from counsel or real estate agents on behalf of the landlord are void unless those consultants are authorized to send the notices in the lease. If your lease does not make such provision, at least a notice to the tenant authorizing the consultant to act for the landlord is recommended.
TAKING CHECKS Provide in your lease form that the landlord may deposit a check regardless of what is written on the check or on an accompanying document. Otherwise, you may be found to have waived your right to proceed with an action as the court will consider that you have acquiesced to the limitation placed on the instrument or accompanying document.
REQUIRING CASHIER'S CHECKS Provide in your lease form that any payments made subsequent to your service of a default notice or subsequent to the dishonor of a check by a bank shall be paid by cashier's check. Do not include money orders as they take too long to trace, and the tenants always say "I slipped a money order under the door last night and have lost the receipt for it!" Banks can usually instantly verify the issuance of a cashier's check.
REPEATED DEFAULTS Provide in your lease form that if the landlord is required to serve more than, say, two notices of default in any rolling 12 month period, the lease may be declared to be in default on the service of the third notice during the same 12 month period and there will be no opportunity to cure. In Florida, like the majority of states, a "default" is defined as the period after any required notices have been served and cure periods have expired. Consequently, if you are required to serve a "three-day" statutory notice under law, the statutory notice may not be served until the initial contractual notice is served and the cure period expires without the event of default being cured. Until then, there is no default. The statutory notice may not be served until the lease is in default.
SERVICE OF STATUTORY THREE DAY NOTICE In Florida, if you mail the three day notice, you must add 5 days to the three day period and you probably are required to exclude weekends and legal holidays for the 5 day mailing period and the 3 day statutory period. Consequently, I always advise serving the three day statutory notice personally or posting it if no one is present. Legal holidays for non-residential actions are those holidays defined by Florida Statutes (Section 683.01). April 2 is Pascua Florida Day, so don't assume that you know what the legal holidays are without confirming by looking at the statute. Their are many surprises. If the holiday falls on a Sunday, the following Monday is deemed to be the holiday. You should post the three day statutory notice on the tenant's front door if no one is present to receive it. If you desire to send a copy to the tenant at another location, be certain to add a cover letter providing that the copy enclosed is not the operative notice as it was served at the premises or posted on the door of the premises, or else the tenant will argue that the notice was improper because it requires the rent to be paid within three days excluding weekends and legal holidays but does not add the 5 days for mailing. Although you sent the copy to be sure "home office" saw it, you will be giving the tenant an argument that they were confused by the 2 notices and figured the mailed notice was incorrect. You may not find out about this defense until trial and then you will lose. The proper contractual and statutory notices are a prerequisite to the court ruling in your favor. Remember, three day notices are only for non-payment of rent evictions.
DEFINE ALL AMOUNTS OWED AS "RENT" In your lease form, define all amounts due from the tenant to the landlord as "rent" or "additional rent" as an eviction for non-payment of amounts due that are not deemed rent are evictions that are not based on statutory three day notices, but instead, on defaults that fall in the category of the tenant failing to comply with some other term or condition of the lease other than the payment of rent. The contractual notice and cure periods are usually between 15 and 30 days and even permit, in some instances, the tenant to have additional time for performance as long as the tenant is diligently pursuing a cure! Yow!!!
MAKE RENT DUE AS AN INDEPENDENT COVENANT In your lease form, provide that rent is due as an "independent covenant". In Florida, why have to argue in court that merely providing that rent is due "without deduction or setoff" is tantamount to agreeing that the tenant’s obligation to pay rent is independent on the landlord’s obligations to make repairs? Although I believe Florida case law and the law of other states stands for the proposition that if the lease expressly provides that the rent is due without “deduction or setoff”, it is therefore due as an “independent covenant”, why have to argue the issue when a simple lease provision can fix it!
OPTIONS TO RENEW Be sure to use a good form clause when granting a tenant an option to renew. For example, be sure to require that the tenant has not assigned or sublet, is in occupancy of the entire premises and open for business as usual, and has not changed effective control of its ownership. Be certain to provide the deadline for the notice to be served electing to renew. Be sure to provide that the conditions apply at all times, even after the election is made. Provide that "time is of the essence" or a court may be able to permit a late election under certain circumstances. Be sure not to use the words "under the same terms and conditions as this Lease" unless you really mean it. Some renewal clauses have been held to require a repeat of rent holidays and tenant improvement allowances.
BLABBING In Florida, if a landlord contacts several business associates of a tenant and tells them that the tenant is out of business and is unable to pay the rent and advises them to stop doing business with the tenant, and those statements are alleged to be willful and malicious and made with intent to injure, without regard to the truth, then an action for slander lies and the case can go to trial. Also, if the landlord attacks the tenant's business by interfering with suppliers and customers or makes disparaging remarks to third persons about the creditworthiness of the tenant's business, a claim for intentional interference with a a business may lie. The elements are both an intent to damage the business relationship and lack of justification for taking such action which caused the damage.
TELECOMMUNICATIONS In Florida, provide that the tenant may not obtain the services of a telecommunications provider without the provider executing a license agreement with the landlord and paying a reasonable fee. Furthermore, the tenant should be required to waive and release any claims against the landlord for loss of connectivity, interruption of utilities, etc., and the tenant should be required to indemnify the landlord for third party claims even if the landlord is negligent. Landlords are not in the business of insuring telecommunications and utilities and should not be required to protect the tenant or its customers from losses resulting from interruptions. Since almost any interruption caused by the landlord is probably due to some negligent activity, it is important to protect the landlord even from its own negligence.
INDEMNITIES First, remember that indemnity has to do with claims brought by third persons against the landlord or tenant. Claims between the landlord and tenant do not involve indemnity for third party actions. In Florida, if you can prevail during negotiations on this point, provide an indemnity to the tenant only for the landlord's gross negligence or willful misconduct and not for the landlord's ordinary negligence. Argue that liability for the landlord's ordinary negligence should be resolved by the law and whomever is found liable shall pay the third party plaintiff to the extent of the fault assigned to that party. On the other hand, try to get an indemnity from the tenant for negligence (which includes ordinary and gross negligence), and willful misconduct.
WAIVER AND RELEASE First, remember that between the landlord and the tenant, the tenant should waive any claims it has against the landlord for damage to its personal property and business damages from whatever cause, including the negligence of the landlord. This is the modern "no fault" concept of risk allocation ignores fault and requires the tenant to obtain its own coverage. Sure, the tenant will end up paying the deductible and uncovered costs or replacement, however, it is the only way to avoid both the landlord and the tenant paying for coverage on the same property and furthermore, it permits the tenant to obtain current coverage on the items of personal property in the premises from day to day, which the landlord can not do without a daily inspection or report from the tenant. In Florida, it is my view, that as between the landlord and the tenant, the specific language exonerating the landlord for its own negligence does not have to be expressly set out as between two contracting parties, the express language is not needed.
SURRENDER In Florida, provide in your lease that the landlord will not be deemed to have accepted a surrender of the premises without expressly having done so in writing. This provision avoids a court interpreting certain actions by the landlord, such as accepting the keys from the tenant, as an acceptance of the surrender of the balance of the lease term, this giving up the landlord's claim for prospective damages or rent.
GUARANTIES When suit is filed on a guaranty, the defenses of the guarantor are usually predictable and often successful. There are a great many cases on the enforceability of guaranties. There are a great many issues with respect to guaranties that must be considered in the drafting stage. For example, in Florida, the guaranties must contain certain words, such as "continuing" or otherwise express that the guaranty shall be for a period longer than the initial term of the lease or the landlord may find that the guarantor's liability ends at the end of the initial term and does not continue through any renewal periods.
NOTICES In Florida, many tenants today want copies of notices sent to an attorney or headquarters offices. First, remember that notices under the lease are usually considered "contractual notices" as opposed to "statutory notices". The procedure for the service of the latter is discussed above and is subject to statutory control The service of contractual notices is generally governed by the lease. Provide in your leases that copies of notices need only be sent if they are default notices. Furthermore, provide that the time period for notices begins to run on the day after the notices are deposited at the post office sent pre-paid, certified mail, return receipt requested, if mailed; on the date of delivery or attempted first delivery if served personally or by overnight carrier. This avoids disputes as to when the curative or other time period begins to run. Remember, certified mail requires that the receipt for mailing (that white slip with the number on it) be stamped at the post office counter to prove you mailed the letter. If the green card is returned signed, there is generally no problem, but when the green card is not returned or is not signed for, the only way to prove mailing is to have gotten the white slip stamped at the post office counter when depositing the letter in the first instance.
RELOCATION CLAUSE GOOFS What happens when you notify a partial-floor tenant with a right of first refusal for adjoining space that you intend to relocate them to another floor in the building because you want to install a full-floor tenant? Florida case law suggests that you may have to afford the existing tenant with the right of first refusal the right to the adjoining space and they can exercise it as to the adjoining space in spite of the prospective tenant's offer to lease the entire floor, with the rent to be equitably pro-rated based on the prospective tenant's full-floor offer. A solution would be to make the relocation clause have priority over the right of first refusal. Of course, I do not recommend giving smaller tenant's any rights to expand, whether it be a right of first offer or a right of first refusal, as the rights are rarely utilized according to most of my client's leasing brokers. These rights just cause problems. More often, the landlord and tenant work out needs to expand and contract without regard to the rights granted in the lease.
ARBITRATION I never recommend mandatory arbitration or other dispute resolution methods be required in a lease. Mandatory arbitration is only beneficial, in my view, with respect to construction disputes between landlords and contractors. Landlords have their best shot at tenants, when a dispute arises, by litigation in court before a judge without a jury. This does not mean that the parties can not agree to arbitrate or mediate a dispute when the litigation is anticipated or begun. However, these alternative dispute resolution methods should never be mandatory in a lease. Florida's statutory language for eviction is fair and quick, and should not be avoided by a lease provision, for as you may know, the tenant must pay the rent into the court registry within five days after the suit is served on the tenant or face summary eviction. Only the tenant is given an advantage when a lease mandates arbitration or mediation. Arbitration is usually a trial before a selected arbitrator who sits under rules promulgated by state law or the American Arbitration Association. They are fast and offer the chance for the parties to agree on an arbitrator. However, arbitration is rarely faster than summary procedure afforded landlords in disputes over possession as provided by Florida statutes. The decision of the arbitrator is binding as is the decision of a judge, however, they can rarely be appealed as can a judicial decision. Mediation is a voluntary program required by most judges in most cases other than evictions proceedings moving under expedited summary rules. Mediation is a great tool to settle cases other than evictions when the facts are known and the mediator is effective. Mediation is final when the parties reach a mutually satisfactory agreement. If no mutually satisfactory agreement is reached, an impasse is reported and the case is returned to the judge for trial.
BANKRUPTCY Consider bankruptcy aspects of the lease you are drafting. For example, if a guarantor files a Chapter 11 bankruptcy (reorganization), did you consider that: (i) the limit of the guaranty may be capped at the amount of the lease rejection damages? Did you also consider that (i) if you intend for the tenant to contribute to the tenant improvements, such as an excess amount over the landlord's tenant allowance contribution, did you know that creditors may claim that such contribution is a preferential payment and subject to an offset against other claims the landlord may be entitled; (ii) if you obtain a large security deposit (by letter of credit or otherwise), intending to at least cover the landlord's tenant improvement expenses, that your ability to keep all the money may be capped at the amount of lease rejection damages; and (iii) landlord's default language in the lease listing as an "event of default" the filing of bankruptcy is not actionable because federal law prohibits the landlord from declaring a default based merely on the tenant's filing a petition in bankruptcy? Solutions to these problems, although complex, can be considered at the time the lease is drafted.