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  1. #1
    Join Date
    Sep 2016
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    Default Is a Commercial Landlord Liable for Renting a Tenant an Unsuitable Space

    A landlord rented a unit in a small strip mall to a tenant who was planning to open a food establishment. The tenant has been progressing slowly toward opening, but recently ran into a big problem: The local government will not license a food establishment in the unit. The problem is that the strip mall is on a septic system, and there is already one restaurant in the mall that uses half of the system's capacity. The tenant has learned that the landlord was informed of the issue shortly after the lease was signed, but the landlord did not pass the information on to the tenant. Did the landlord violate a duty to the tenant by not relaying that information to the tenant, and does the tenant have any grounds for recovery against the landlord?

  2. #2
    Join Date
    Sep 2005
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    Default Re: Is a Commercial Landlord Liable for Renting a Tenant an Unsuitable Space

    The landlord may have some liability, and the tenant may be able to get out of the lease, but an analysis of the situation will depend upon the language of the lease, what the landlord knew about the tenant's business plan, and when the landlord gained that information.

    If the landlord knew that the tenant was planning to open a food service establishment, but did not know that there would be a septic issue, then there might be a possibility to end the lease based upon mutual mistake. While a tenant does have obligations of due diligence, to make sure that the opening of a restaurant would be possible, if the landlord told them that the space was suitable and they had no reasonable means of detecting the issue before signing the lease, it would seem to be a case of mutual mistake.

    If the landlord knew that the tenant was planning to open a food service business that would not be allowed to open due to the septic tank issue, the landlord may have had a duty to inform the tenant of the issue so as to keep the tenant from continuing to invest in a venture for which it could not be licensed to open.

    If the tenant rented the space without discussing his plans for the space with the landlord, or rented for a different purpose and then decided to open a restaurant, the landlord would have no inherent reason to believe that the tenant was planning a use that would prevent their being allowed to open, and the problem is more likely to be deemed an issue of the tenant's lack of due diligence.

    The tenant will need to have the lease reviewed by a commercial real estate lawyer.

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