Ensuring Right to Enforce Lease with Corporate Tenant
Q: I tend to lease space to a lot of partnership and corporate tenants. I recently learned that if a business hasn’t taken the necessary partnership or corporate actions to allow it to enter into a lease, I could end up having trouble enforcing the lease later. Are there any provisions I can include in the lease to avoid hassles down the road?
A: Yes. The danger of leasing space to a tenant that doesn’t exist for legal purposes because it hasn’t followed necessary formalities is that it can try to walk away later, claiming that it wasn’t bound because the partnership or corporation was never legally formed. To protect yourself, use a special lease clause with partnership and corporate tenants.
The clause says that the tenant has taken all required partnership or corporation steps to enter the lease. If the tenant didn’t take the necessary action to authorize the lease, you can sue whoever signs the lease for the tenant for misrepresentation. The clause also requires the tenant to give you proof that the corporation or partnership has authorized the lease. This proof gives you some assurance that the business exists and that the lease has been authorized by the partnership or corporation.
Model Lease Language
Authority. Tenant represents and warrants that it is duly formed and in good standing, and has full corporate or partnership power and authority, as the case may be, to enter into this Lease and has taken all corporate or partnership action, as the case may be, 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 such execution.