Get Proof of Partnership/Corporation's Authority to Sign Lease

Before signing a lease with a partnership or corporation, get proof that the business is a valid legal entity and that it’s taken the necessary partnership or corporate action to allow it to enter the lease. Otherwise, you may have a hard time enforcing the lease. The risk: If the partnership or corporation was never legally formed and/or legally bound to the lease, the tenant will be able to walk away from the lease with impunity.

Problem: Not Following Formalities May Make Lease Unenforceable

A partnership or corporation that doesn’t have a valid legal existence can’t lease property as a partnership or corporation. Even if a partnership or corporation is a legally valid entity, it may have to follow certain formalities to enter into a lease. For example, a partnership agreement may bar an individual partner from entering a lease unless all of the other partners first give their consent. Or a corporation’s bylaws may require holding a special board of directors meeting to approve a lease. If these formalities aren’t followed, the lease won’t be properly authorized. Translation: It won’t be binding on the partnership or corporation.

Solution: Include Special Lease Clause to Bind the Entity

The good news is that you can avoid potential problems with partnerships and corporations by including a lease clause in which the tenant states that it has taken the required partnership or corporate action to enter into the lease. Then, if that statement turns out to be untrue, you can sue the person who signed the lease on the tenant’s behalf for misrepresentation. The clause also protects you by requiring the tenant to furnish proof that the partnership or corporation has authorized the lease.  

Model Lease Language

Authority: Tenant represents and warrants that it is duly formed and in good standing, and that it has full [partnership/corporate] authority and power to enter into this Lease and has taken all [partnership/corporate] action necessary to carry out the transaction contemplated herein, so that when executed, this Lease constitutes a valid and binding obligation enforceable in accordance with its Terms. Tenant shall provide Landlord with corporate resolutions, or other proof in a form acceptable to Landlord, authorizing the execution of the Lease at the time of execution.

Get Proof of Proper Lease Authorization

A certified copy of the tenant’s partnership agreement or articles of incorporation is adequate proof that the business legally exists. A certified copy of the minutes of the partnership or board of directors meeting at which the lease was approved proves that the partnership or corporation authorized the lease.

If the tenant is a corporation, you can take an additional precaution by calling the corporation division of your state to request verbal confirmation that the company has been properly formed and is in good standing—that is, paid its state taxes. That’s especially important in states that have the power to dissolve corporations that don’t pay their taxes.