Resolving Commercial Lease Disputes

Commercial lease disputes can be complicated and can involve considerations that are unique to the businesses and parties involved. In addition to talking to your client to understand its position, gather information about the history of the landlord-tenant relationship, the business needs of each party, the exact nature of the dispute, and what each party is seeking. For example, you may find out that a party has an incorrect understanding of the lease terms, may have misconstrued a statement by the other party, or may just have new business needs that were not contemplated by the lease.

Once you understand the nature of the dispute and the goals of the parties, look closely at the actual language of the lease. Most commercial leases cover a wide range of situations. Review the provisions most applicable to the dispute and explain the lease obligations to your client. If the lease is unambiguous on the particular issue, it may simply be a matter of enforcement. If the lease is more ambiguous, however, explain the different plausible interpretations to your client. If the lease does not contemplate the particular scenario, it may be time to negotiate.

Commercial leases can involve or affect parties other than the landlord and tenant who executed the lease. Before negotiating, review any formal or informal agreements with third parties that may affect negotiations. Pay particular attention to any nondisturbance agreements, co-tenancy clauses, exclusive use agreements, and loan documents.

Work with your client to come up with several acceptable options for resolution. Your client will have ideas about the desired outcome. However, is that desired outcome achievable or realistic? Manage your client’s expectations and offer other solutions if necessary. In addition to the substantive outcome, consider the desired time line for completing performance. Setting a time frame for resolution may prevent the dispute from recurring or evolving into something more serious.

If the landlord-tenant relationship is amicable and the issue is uncomplicated, consider having your client negotiate directly with the other party. This saves your client money and can help avoid unnecessary escalation by involving attorneys (though you should review any resolution documentation before execution). Educate your client on its rights and obligations under the lease and help your client articulate its goals. Before making a recommendation, find out about the parties’ relationship, past behavior, or the resolution of past disputes. Even when the parties have an amicable relationship, as issues or disputes become more complex, they are best resolved by attorneys.

Despite your efforts to gather all the information about the dispute, additional facts may come up during negotiations. You may be surprised to learn the other side’s position. For example, a tenant complaining that the landlord failed to perform building maintenance may be perfectly willing to fix the issue on its own for a small credit on the monthly rent, or a tenant has failed to perform an obligation but may be willing to pay the landlord to complete it. When unexpected things arise, be flexible and creative about solutions.

Put the agreed-on resolution in writing (i.e., an amendment or addendum to the lease), including all relevant terms, dates, and time periods, and have it signed by both parties. If you believe similar disputes could arise in the future, it may be a good idea to address those concerns now to prevent future issues. In situations where the dispute is minor and not likely to recur, a simple letter of understanding that covers all the necessary points may suffice (but it should nonetheless be signed by all involved).

After an agreement has been reached and the parties have executed an addendum, follow up with your client to make sure the parties perform as agreed and inquire if there were any issues that were not contemplated (and need to be). This serves as a good reminder to your client to fulfill its obligations and ensure that the other side is also performing. It may help prevent the matter from escalating.

Some disputes will end up requiring the court’s involvement. Keep a clear record of all your work in trying to resolve the dispute or providing notice of deficiencies. Your client’s efforts to address the matter works in your client’s favor. While some matters involving offers to compromise may not be admissible at trial (per MRE 408), having a good record of these efforts can’t hurt, especially in a facilitation or mediation.

• Michigan Lease Drafting and Landlord-Tenant Law (see chapters 5 and 7)
• Checklist—Landlord—Prelitigation