Protect Your Right to Sue a Foreign Tenant or Foreign Guarantor

To fill vacant spaces in your building or center, you may be looking at all types of prospective tenants. But you're at risk for special problems if you agree to rent space to: 1) a foreign tenant (even if its lease is guarantied by a U.S. guarantor); 2) a U.S. subsidiary or affiliate whose lease is guarantied by a foreign company; or 3) a foreign tenant whose lease is guarantied by a foreign guarantor. For example, if the tenant defaults under the lease, you may have trouble suing it and/or the guarantor in a local court. The tenant and/or guarantor might insist that your lawsuit should have been filed in its home country. Or the tenant and/or guarantor might refuse to honor your local court's ruling against it.

To protect yourself, make sure that your lease with a foreign tenant—and guaranty from a foreign guarantor—includes four key points that will let you sue the tenant and/or guarantor in a local court if the tenant defaults under the lease, says New York City attorney Jeffrey A. Moerdler. There's a Model Clause on p. 6 that you can adapt and use that covers these four points.

Include Four Key Points in Lease or Guaranty

If you agree to rent space to a foreign tenant and/or accept a guaranty by a foreign guarantor, make sure that the lease and guaranty include these four key points, which appear in the Model Clause.

Get Agreement to Local Court's Jurisdiction

Don't give a foreign tenant or foreign guarantor an opening to argue that you must go to a court in its home country. Instead, require each to agree that:

You can choose court. Get the right to require that any lawsuit be filed in the court that you choose, says Moerdler. Say that you can choose from the courts—whether state or federal—in the county where your building or center is located, he advises. If that county is different from the county where your office is located, also give yourself the option of choosing a court in your office's county, he adds [Clause, par. a].

Tenant/guarantor will “submit to jurisdiction.” Have the foreign tenant and foreign guarantor agree to “submit to the jurisdiction” of your court. In plain English, that means they agree to give your court the power to make a ruling that will affect their interests, says Moerdler [Clause, par. a]. Otherwise, they may argue that they don't have to honor the court's ruling.

Final judgments are binding. Have the foreign tenant and foreign guarantor acknowledge that your local court's final judgment will be binding on them, says Moerdler [Clause, par. a]. Otherwise, they might try to challenge the judgment in a court in their home country, he warns, creating confusion and delay and inflating your costs.

Require Appointment of In-State Agent(s)

Get the foreign tenant and foreign guarantor to appoint one or more “agents” to accept notices and service of legal documents—such as papers to start a lawsuit—on their behalf, advises Moerdler. This is important because a foreign tenant or a foreign guarantor may be located so far away that the service of legal documents would be difficult, time-consuming, and expensive, he explains. So require:

Local agent. In the lease, identify the agents by name and address [Clause, par. b]. This allows you to be sure that the agents are located nearby—that is, in the same city, county, or state as the building or center or your office, says Moerdler. For example, an agent may be a local attorney or corporate service company.

Signed appointment form. Get proof of each agent's appointment by having each agent sign an acknowledgment in the lease. Also, require that each agent and foreign tenant or foreign guarantor sign a special appointment form confirming that an agent has been permanently appointed and accepted. For example, in New York the form is an “Appointment of Agent for Service of Process,” says Moerdler. The signed appointment forms must be filed promptly with the court clerk of the county where the courts you've chosen are situated, he says. He recommends filing them yourself to make sure that they're filed quickly and correctly [Clause, par. b(ii)].

Practical Pointer: To find out which appointment form is acceptable, check with the county clerk's office in the county where your building or center or office is located, says Moerdler. And find out if there's a special procedure for filing a document to make the appointment of agent binding, he adds.

Appointment form renewals. Typically, these appointments generally last for a specific period—such as five years, says Moerdler. So require the agents and foreign tenant or foreign guarantor to immediately renew the appointment forms whenever they expire during the lease and for a period of time—say, six months—after the lease expires or is terminated early, he says [Clause, par. b(iii)]. This extra time is important because you may want to sue the tenant or guarantor after the lease ends. For example, you may learn after the lease ends that the tenant damaged its space when it moved out, Moerdler explains.

Assignment form for your assignee. Say in the lease that if you sell or transfer the building or center—and assign the lease—the agents and foreign tenant or foreign guarantor agree to promptly sign and deliver new appointment forms to allow the agents to accept legal documents for the assignee, says Moerdler. Also, require them to do the same for any needed renewals [Clause, par. b(iii)].

No lapse in agents. Require the agents to agree to remain as agents until they're replaced and you accept their replacements, says Moerdler. You don't want any agent to resign without a satisfactory replacement ready to step in, he warns. And make it clear that a satisfactory replacement agent must have an office in an area that you choose and be otherwise acceptable to you, he adds [Clause, par. b(i)].

Get Right to Deliver Notices or Legal Documents to Agent

Get the right in the lease and guaranty to deliver legal notices and other legal documents to the foreign tenant, foreign guarantor, or any of their agents—by any method permitted by your lease's notice clause, says Moerdler. (For example, your notice clause may let you serve the legal documents personally, by overnight courier, or by fax.) Also, get the right to deliver the legal documents in any other way permitted by law, he adds [Clause, par. c].

Have Protections Survive Lease's Expiration

Make sure these key protections survive the expiration or any earlier termination of the lease, says Moerdler [Clause, par. d]. Otherwise, the foreign tenant and foreign guarantor may argue that they no longer apply once the lease ends, he warns.

Practical Pointer: As an added protection with a foreign tenant that has a foreign guarantor, consider requiring the tenant to also give you a guaranty signed by a guarantor that's a U.S. company—or a U.S. citizen—and located in your state, says Moerdler. And if a foreign tenant has no guarantor, try to get a U.S. guarantor, he says. Then, if the tenant violates the lease and escapes to its home country, you can go after the guarantor for damages, he explains.

CLLI Source

Jeffrey A. Moerdler, Esq.: Partner, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC, 666 Third Ave., New York, NY 10017; (212) 935-3000; jamoerdler@mintz.com.