The New York Appellate Division recently narrowed the protection a clause in the standard office lease form afforded landlords and building owners. Landlords always insisted on lease language stating that they are making no representations as to the legality of the tenant’s proposed use of the premises. More specifically, the clause provides that the owner does not promise that the planned use of the space complies with the certificate of occupancy. In the case, Jack Kelly Partners v. Zegelstein, originally heard in Manhattan Supreme Court, the landlord advertised the premises as a commercial unit despite it being zoned solely for residential. The lease also limited the tenant to use the premises as a commercial office. The dispute arose when the Tenant discovered this and asked the owner to amend the certificate of occupancy to comply with its commercial use. The landlord refused citing this clause. In response, the tenant moved for rescission of the lease and a declaratory judgment stating the lease was no longer valid. The tenant essentially asked the Court to rewrite the lease giving him a right to terminate the lease based on the landlord’s representations during negotiations despite the disclaiming language in the standard office lease.
In most cases of this type, Courts rule that the tenant has the burden to conduct due diligence about the permitted use of the space before signing the lease. Commercial and retail tenants are generally held to the standard of “caveat emptor” and not given the same protections as residential tenants. This was essentially the ruling by the Supreme Court in this matter. It held that the contractual terms in the standard office lease should govern.
The Appellate Division, however, found that, in this particular case, an amended certificate of occupancy would be difficult, if not impossible, to obtain. Also, the office’s flooring did not have the adequate load per square foot to be used as a commercial space and was unsafe. The Court found that the owner should not be able to avoid being held accountable for all his marketing and representations with one paragraph buried in the standard office lease form.
Tenants must fully understand the contents of the Standard Office Lease Form
Although the tenant got out of the lease in this instance, a retail or office tenant should understand that the Courts generally consider them to be sophisticated players with knowledge and negotiating power on par with the landlord. They must conduct extensive due diligence on every aspect of the deal and fully understand every clause in their commercial lease.