Q: I have been renting a house for more than two months now and the relationship with my landlords has already gone sour. My landlords represented themselves as the owners of the house, but their son owns the house, not them. The son did not sign the lease — my landlords (his parents) signed. I think that renting out this place was the parents’ idea, not the son’s. Is this lease legal? –Jess D.
A: I’m guessing, by reading between the lines, that you’re looking for a way to get out of your lease. I imagine that the problems that have soured your relationship with the landlords are big ones, and you want to leave. Perhaps you’re thinking you can get out of this lease without responsibility for future rent. That would be a welcome turn of events.
But I don’t think this is a viable legal avenue for you. Even assuming that the son-owner’s parents pressured the son to let them lease out the house, that’s no reason to invalidate the lease. The son could have said no. Instead, it appears that he capitulated to his parents’ pressure, and did nothing while the parents went ahead with the rental. Businesspeople do all sorts of things under pressure, and for reasons they don’t like or would like to change, but that doesn’t mean that the contracts they sign are not enforceable.
Likewise, the fact that the parents signed the lease, not the owner, won’t do you any good. In legal lingo, the parents were acting as the owner’s agent, which happens all the time (a manager, for example, is an agent of the owner). As long as the owner has conferred authority on the agent, and the agent does not act in ways contrary or beyond the power he has been given, the agent’s acts bind the owner. In short, the parents’ signature on the lease makes it a binding legal document.
Q: We own a strip mall with several small businesses as tenants. One tenant is planning on selling its business, and we’re concerned that we’ll end up with a new tenant that won’t be able to pay the rent. Is there anything we can do to protect ourselves? –Jonathan and Ray
A: The first place to look for your answer is in your lease. Even a bare-bones commercial lease will include a clause that prohibits the tenant from assigning the lease without your consent. Hopefully, your lease has such a clause, as well as an explanation that "change of control" of the tenant’s business (this includes a sale) constitutes an assignment for the purpose of the clause.
When the lease includes a clause like this, the sale of the tenant’s business necessarily involves the landlord. If the landlord refuses to allow the lease to be assigned (he refuses consent), the deal will usually fall apart. That’s a lot of control to place in the hands of the landlord, but when you think of it from the owner’s point of view, it makes a certain amount of sense. After all, the landlord chose the tenant based on the landlord’s assessment of the tenant’s ability to regularly pay the rent — in short, to run a profitable business.
If the business is sold, the assessment may change (who’s to say that the new owner will be as business-savvy as the old?), and the landlord could find himself saddled with a tenant to whom he would never have rented in the first place.
Still, allowing the landlord to scotch the sale is a bit extreme. A better plan would be to ask the landlord to accept a higher security deposit if the landlord believes the new owners would pose a higher risk of default than the current owners. The agreement could provide that, after a certain number of months of on-time payment, the deposit will "burn down" to the original amount, thus freeing up a large amount of the new owners’ cash, which it can presumably use to grow its business.
Landlords who refuse to be reasonable face an alternative that’s not very cheerful — current tenants who want out of the business, but who are tied to the business by virtue of the landlord’s veto. Such owners may themselves default, placing the landlord in the very position he’s afraid of courtesy of the buyers. Everyone will benefit if a compromise can be reached.