Make Tenant Acknowledge Independent Investigation

Before signing a lease with you, a savvy prospective retail tenant may independently investigate your center's business operations, rather than relying solely on what you say about them. Therefore, the tenant should have only itself to blame if its store fails.

But if your lease is like many we've seen, it may have this loophole that could hurt you: The lease doesn't require the tenant to acknowledge that it's relying solely on the results of its own investigation of your center's business operations when deciding to sign the lease. If the tenant's business flops, it might try to sue you, claiming that it relied on your fraudulent statements about your center's business operations when deciding to sign the lease. And you could end up wasting time and money to convince a judge or jury otherwise.

To plug this loophole, make the tenant acknowledge in the lease that it independently investigated your center's business operations and that it isn't relying on what you said about them, says New York attorney Gary A. Goodman.

Indiana Owner Stops Tenant's Fraud Claim

Here's how that acknowledgment helped an Indiana owner: A tenant acknowledged in its lease that it had independently investigated the center's business operations and didn't rely on the owner's statements about those operations. The owner sued the tenant when it failed to pay its rent. The tenant responded by claiming that it had been “induced” to sign the lease by the owner's fraudulent statements about the center's sales.

The Indiana appeals court dismissed the tenant's fraud claim, saying that the tenant's acknowledgment in the lease barred its claim. The court admonished the tenant, saying the tenant “can't have it both ways.” That is, the tenant couldn't acknowledge in the lease that it had independently investigated the center's operations and wasn't relying on the owner's representations and then later argue the opposite, the court said [Circle Centre Development Co. v. Y/G Indiana, LP, 2002].

Add Acknowledgment to Lease

To get that acknowledgment from your tenant, add the following language to your lease's standard clause saying that no representations, promises, warranties, or agreements exist between you and the tenant, except those expressly set out in the lease, says Goodman:

Model Lease Language

Tenant acknowledges that it has independently investigated the potential for success of its operations in the Center and has not relied upon any inducements or representations on the part of Landlord or Landlord's representatives, other than those contained in the Lease.

Insider Source

Gary A. Goodman, Esq.: Partner, Sonnenschein Nath & Rosenthal LLP, 1221 Ave. of the Americas, 24th Fl., New York, NY 10020; (212) 768-6916; ggoodman@sonnenschein.com.