Getting the right legal representation when you’re preparing to enter a commercial lease is important in many ways. Your knowledgeable South Florida landlord-tenant attorney can, of course, help you negotiate your lease. In addition, however, your attorney can help you obtain a clear understanding of what rights and responsibilities you do – and don’t – have under your lease, and provide effective advocacy to ensure that you are not held to a higher standard (or more obligations) than what the lease agreement actually prescribes.
A federal case that originated here in South Florida is a good example. The lessee was a major “big box” home improvement store. The lease agreement, signed in 2006, established an initial 20-year term. The lease gave the lessee the option to “construct and operate a retail building.” If the lessee didn’t exercise that option, then that failure to exercise the option gave the landlord the right to increase rent or terminate the lease.
Two years into the lease, the tenant had constructed and opened one of its stores on the property. Five years after that, misfortune struck. A suspected arson fire did significant damage to the building. The local government inspected and determined that the building needed to be repaired or demolished. The tenant opted to do the latter, and also decided not to rebuild.
The landlord eventually sued for breach of contract. The landlord’s argument, based on its interpretation of the lease, was that the agreement required the tenant to rebuild “any improvements made to the land but razed during the lease term.” In other words, the lease didn’t oblige the tenant to build but, once the tenant chose to build, the lease required the tenant to reconstruct what it did build. By failing to rebuild after the fire, the tenant violated its obligations and owed damages, according to the landlord.
That argument, however, did not succeed. The federal district court and the 11th Circuit Court of Appeals both sided with the tenant, concluding that the tenant’s interpretation of the lease was correct, and the landlord’s was wrong. The building was damaged in an arson fire, which qualified as a “casualty loss.” The lease agreement specifically stated that if the building or any of the tenant’s other improvements were destroyed by a casualty loss during the lease term, then rebuilding was optional.
‘Election’ language made it clear the tenant wasn’t required to rebuild
The landlord tried to assert that the use of the word “shall’ in the “Damage and Destruction to Premises” paragraph of the lease was indicative of the tenant’s mandatory obligation to rebuild any building or improvement lost to casualty. Normally, when parties use the word “shall” in a contract, that word means “must” or “is required to,” but that isn’t always the case. In this contract, the relevant provisions stated that the tenant “shall, at its election and at its expense, rebuild and restore.” Despite the use of the word “shall,” the “at its election” language made it unambiguous and clear that rebuilding was at the tenant’s option, and not mandatory.
The tenant emerged successful in this case because it understood clearly what it was – and was not – obligated to do under the terms of its lease. This is always essential in any commercial lease situation in order to best protect your business interests. To make sure you are armed with the knowledge you need about your commercial lease, count on the skilled South Florida landlord-tenant attorneys at Stok Kon + Braverman to provide you with the in-depth advice and determined advocacy you need.
Contact us online or by calling (954) 237-1777 to schedule your consultation.