Commercial Lease Dispute and the Integration Clause

In AGBL Enterprises, LLC v. Girlcook, Inc., 96 So. 3d 1058 (Fla. 4th DCA 2012), AGBL Enterprises (“Lessor”) leased a commercial building in a shopping plaza to be used as a full service restaurant to Girlcook (“Lessee”). The lease contained an integration clause that stated, “[T]he entire agreement between the Lessor and Lessee consists solely of the terms in this lease and the accompanying rider. The agreement between the lessor and lessee will not consist of any verbal or implied statements which are not specifically written in this lease or the accompanying rider.” Despite the shopping plaza undergoing major renovations at the time the lease was signed, no provision in the lease required the renovations to be completed by any specific date. Moreover, Lessee agreed to accept the premises, which included the building being leased and the entirety of the plaza, in the current condition at the beginning of the rental period. The lease also required Lessee to make monthly rent payments before the first day of each month. In turn, Lessor was responsible for maintaining the roof, foundation and exterior of the building, and all parking areas in decent repair for their intended use.

After Lessee failed to make rent payments for three months, Lessor brought an action seeking eviction and past due rents for breach of lease. As an affirmative defense, Lessee alleged that it had notified Lessor that Lessor was in breach of lease for failing to maintain the premises, and that Lessee was placing rent payments in escrow. Lessee also filed a counterclaim alleging fraudulent inducement into executing the lease and that Lessor breached the lease: (1) by failing to have the sewage hooked up as required by September 1; (2) by refusing to repair the roof, parking structures, air conditioning, and landscaping; (3) by providing inadequate parking spaces for the businesses in the plaza; and (4) by intentionally removing and destroying the return air unit of the restaurant.

The trial court determined that Lessor had breached the lease because Lessor’s work in the plaza was not completed by September 1, 2007 and because Lessor had failed to maintain the roof of the building, exterior of the plaza, and all parking areas in decent repair. The Fourth District Court of Appeal affirmed the finding that Lessor breached the lease by failing to maintain the premises; however, reversed and remanded with instructions that the trial court reduce damages attributable to Lessor’s failure to timely complete work on the shopping plaza.

In its reasoning, the Fourth District Court of Appeal agreed with Lessor that the trial court erred by considering parol evidence to contradict the terms of the fully integrated written lease agreement. Lessor could not be liable for damages incurred by Lessee as a result of Lessor’s failure to complete work on shopping plaza where building was located because Lessor had no obligation under the lease.

This case demonstrates the importance of understanding the provisions in a commercial lease for both the Lessor and Lessee. Although negotiations prior to signing the lease may have involved a completion date for the plaza’s renovations, the integration clause required any terms to be specifically written in the lease. Commercial transactions can be complex and require meticulous attention to detail and superior negotiation skills. At Schecter Law, our attorneys are equipped to provide representation in the litigation aspect of your case, as well as on the transaction end.  To read about Essential Terms in a Commercial Lease, please visit our real estate website at www.floridarealestate.law.

When signing a commercial lease, it is essential to understand and agree to all of the provisions. The provisions in a commercial lease are usually designed to favor the landlord; however, a landlord may be willing to negotiate. An experienced real estate attorney should be consulted before entering a commercial lease. Here are a few essential terms that should be clearly understood prior to signing:

Term – A short-term lease provides a tenant with more flexibility for changing needs. The tenant may decide on a change of location or a space with more or less square footage. If a tenant is confident in the location they are choosing, it may be advantageous to negotiate a long-term lease. With a long-term lease, the tenant does not have to worry about the landlord renewing the lease and may receive a better rent payment or other concessions. An additional option is to negotiate a short-term lease with an option to extend or renew when the tenant is unsure whether the location will be a good fit. While an extension gives the existing lease a new end date, a renewal results in both a new beginning and end date.

Rent – Negotiating the rent in a commercial lease largely depends on the market. If the market is strong, a landlord is unlikely to reduce rent payments. Additionally, landlords may try to include annual increases to rent in the lease terms. A tenant should negotiate any proposed annual rent increases. The tenant may want to insist on the elimination of such a clause, get a cap on annual rent increases, or exclude rent increases in certain years. Another consideration is a gross lease vs. a net lease. A gross lease includes the costs of utilities, repairs, taxes, and insurance. A net lease does not include these costs and a tenant may prefer to negotiate a higher rent to eliminate responsibility for these potentially large costs.

Quiet Enjoyment – In the absence of an express agreement to the contrary, the landlord impliedly covenants to protect the tenant from removal by anyone having an interest in the premises that is superior to the interest of the landlord. A tenant should consider including a covenant of quiet enjoyment and removing any contrary express agreement before signing a lease. Violation of the express covenant of quiet enjoyment has been found to constitute constructive eviction, permitting the tenant to vacate the premises without liability.

Repair and Maintenance – In the absence of an express agreement to the contrary, the landlord has no obligation for repairs. The tenant must maintain the premises in the same condition as when the lease started. If not negotiated otherwise, the tenant may be required to repair the roof, windows, and doors to prevent intrusion of the elements. A tenant should include an express provision that the landlord is responsible for repairs. If a tenant follows notice procedures when a landlord fails to make repairs, a tenant may withhold rental payments and eventually may terminate the lease under Fla. Stat. 83.201.

Condition of Premises – In an absence of an express agreement to the contrary, the landlord has no liability for the condition of the premises. There is no implied warranty of habitability or fitness for use. A commercial tenant should be cautious when inspecting the premises. The tenant should ensure that the property is in useable condition for the intended purpose. An express provision should be drafted if the tenant wants the landlord to fix a condition of the premises.