I recently encountered a court case the demonstrates this principle and its disastrous consequences. A landlord and tenant quickly entered into a lease where the tenant was leasing “premises” defined as approximately half the available office space. The parties further agreed that the tenant would have the right to purchase the property. The parties, however, in their haste, failed to define what property meant. The tenant later exercised its right to purchase the property, however, the landlord refused to honor the option. The parties predictably ended up in litigation over the word property.

Definitions of Property and Premises are not Identical

After both parties expended significant sums in legal fees, the court of appeals determined that the lease defined premises but the option to purchase was for the property. The term property, however, was not defined anywhere in the lease. The court concluded that the option failed and was not enforceable because it did not define the property subject to the purchase option.

Haste makes litigation waste. A competent commercial real estate attorney can save you thousands of dollars in litigation fees by properly drafting this lease by defining premises and separately defining the property by attaching the legal description of the property to the lease. You may also not be aware that it’s a good idea to file a memorandum of the lease in the county real estate records so any third party who wishes to purchase the property will have notice of the purchase option. Many people, unfortunately, belatedly realize the value of a good commercial real estate attorney only after feeling the pain of five or six figure litigation costs. Avoid these costly mistakes by employing a seasoned commercial real estate attorney.

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