Important Considerations for Tenants and Landlords Explained by Douglas E. Herman
Tuesday, November 11th, 2014
As with all relationships between people, the landlord/tenant dynamic can be a complicated one. Fortunately, Douglas E. Herman, a partner in the Litigation, Real Estate, and Financial Services Sections of Oliver Maner LLP, is an expert—and he’s not keeping his insider information to himself.
Doug concentrates his practice in commercial and insurance litigation, real estate matters, and financial services litigation, and he has been included multiple times in U.S. News & World Report's Best Lawyers publication in the areas of Real Estate Litigation and Commercial Litigation. Doug has also been named a Rising Star by Georgia's Super Lawyers publication in the area of Professional Liability Defense, and he has achieved a 5.0-Preeminent AV Peer Review rating from Martindale Hubbell. But he doesn’t want to talk about his numerous accolades—he wants to talk about your lease.
“Aside from the price to be paid for rent and any common expenses, some of the most important elements of a commercial lease—for both parties—are the length of the lease term, renewal or lease extension options, and triggering factors that will allow one of the parties to terminate the lease or to avoid additional options or lease terms,” Doug explains.
For example, if a commercial tenant invests a great deal of money in property improvements at the beginning of her lease, it’s important that she negotiate a lease with a term that is substantial enough to reap the benefits of the investment made. “A new business that is entering into a long-term lease may want to also consider an ‘opt out’ clause in the lease,” Doug continues. For example, this might allow the tenant to opt out after three years of a five-year lease if their business was not attaining a gross sales quotient pre-determined in the lease.
But there are other important caveats to consider, as in anything relating to the law. “Another very important provision relates to the dispossessory process,” Doug warns. “After a landlord has filed the appropriate affidavit and paperwork with the clerk to commence a dispossessory lawsuit, the sheriff serves the tenant with that paperwork.” In most lawsuits in Georgia, a defendant has 30 days after being served by the sheriff to file an answer. “If a defendant does not file the answer within the 30-day period, the defendant will have an additional 15 days to ‘open’ the default that occurred by simply paying a fee to reopen the case,” Doug explains. “However, in dispossessory matters, a tenant will only have seven days following service to file an answer. Moreover, if the tenant fails to file an answer, there is no additional period by which the tenant can ‘open’ the default as a matter of right simply by paying a fee. Thus, attorneys and tenants who do not regularly deal with dispossessory matters in Georgia often fall victim to this unique provision applicable to dispossessory lawsuits.” Fortunately, Doug is a partner at a century-old firm; they’re experienced with every possible outcome.
How do commercial and residential rental situations differ, in terms of the law? “Simply put, the provisions of the Landlord and Tenant Act that apply to residential leases are far more comprehensive and are designed to protect the interests of individuals against corporate landlords and individual landlords with a large inventory of rental properties,” Doug says. “The Act presumes, in the context of commercial leases, that the parties are sophisticated business owners who have the means and foresight to retain experienced counsel to negotiate lease terms that will protect the interests of both parties.”
With that in mind, it’s extremely important for residential landlords to understand whether certain provisions of Georgia’s Landlord and Tenant Act will apply to their unique landlord/tenant relationships. “There are special provisions of the Act that do not apply to commercial leases at all and they do not apply to certain residential leases,” Doug clarifies. “They were passed by the legislature to protect residential tenants from certain types of landlords. These provisions protect residential tenants with less bargaining power from potential abuses by landlords who are presumed to have the upper hand in bargaining power.” It’s also worth noting that these special provisions do not apply to most mom-and-pop residential landlords if they own fewer than ten units and manage these units themselves.
If a landlord who is required to follow these special notice, inspection and dispute resolution provisions fails to do so, the tenant may recover statutory damages in an amount equal to three times the sum improperly withheld by the landlord, plus reasonable attorneys’ fees. “More importantly,” Doug goes on, “failure by the landlord to follow these provisions, if applicable, will also bar a claim against the tenant for damage caused to the leased space, even if the harm is substantial, such as fire damage. Therefore it is very important for a residential landlord to know whether a given lease is subject to these special provisions.” Many individual residential landlords wrongly assume these special provisions don’t apply to them, thereby exposing themselves to liability and attorneys’ fees.
From a tenant’s perspective, a full understanding of the landlord relationship is just as crucial. “It is critically important for out of state and inexperienced corporate tenants to understand that, although Georgia’s Landlord and Tenant Act contains very specific procedures and protocols for dispossessing tenants, and that these provisions generally require court filings, notices, opportunities to cure delinquencies and the like, the dispossessory process may be dispensed with under Georgia law by agreement between commercial parties,” Doug says. “Thus, many commercial landlords will include provisions in their leases permitting them to immediately demand and retake possession of the leased properties without resort to the Landlord and Tenant Act’s dispossessory provisions. This can be especially disruptive and punitive for an unsuspecting commercial tenant, especially in a tight market where the landlord may believe that he can fetch a much higher rental for the space by installing a new tenant under new lease terms.” Naturally, this can be especially brutal for a commercial tenant who has invested money and time making improvements to the leased space.
The question becomes not if but when individuals should seek the help of an experienced attorney in dealing with these matters. “Commercial landlords and tenants should retain experienced counsel before any lease drafts are ever exchanged,” Doug says. “A lease, like any other important legal document, should be designed to maximize the objectives of the client.” As someone who regularly litigates real estate disputes after a lease relationship breaks down, Doug can’t count the number of times he’s encountered clients who are penny wise and pound foolish—failing to engage counsel when drafting the lease, and paying for it exorbitantly in the long run.
“The way to avoid litigating lease disputes is to engage competent counsel from the outset and for the client to communicate fully to the attorney his or her objectives and principal concerns and issues for both the short and the long term, as applicable,” Doug states. Landlords and tenants alike often wear rose-colored glasses when entering into a lease, assuming that things will always go well and that both parties’ interests will always be aligned. “We have learned that even well-intentioned, good people are forced to play hardball when the economy turns sour, or a particular market sector experiences volatility,” Doug says, reflecting on his 14-year career in law.
The take-home? Planning ahead with a competent lawyer who understands your objectives will allow you to avoid paying costly litigation fees down the road—and that’s something every landlord and tenant can appreciate.
For more information visit www.olivermaner.com