What Is a Lease Agreement That Has been Executed?
A rental property transaction involves several forms but, among those forms, a lease agreement is crucial for both landlords and tenants. The lease agreement clearly defines a lot of information, including the property subject to the contract, the length of the tenancy, and the financial responsibilities of the parties involved. Once signed, you can classify the lease agreement as an executed lease agreement.
An executed lease agreement is one where all involved parties, including the landlord, property agent and tenant (or tenants), have signed the form, showing an acceptance of the terms and conditions within . In this context, executed does not refer to a residential property contract that’s been co-signed; rather, executed refers to the acceptance of the provisions of the contract. An executed lease agreement becomes legally binding upon the parties at that point and can only be voided under special circumstances, such as a contract signed under fraud.
A non-executed lease agreement refers to a contract that has neither been signed by one of the involved parties nor executed/met the signing requirements outlined in the specific state where the property is located. Even if a landlord has signed their name to a lease agreement, if the tenant has not signed, then the contract is not legally binding on that specific entity.
Key Provisions Within a Lease Agreement
Whether you’re a landlord or tenant, it’s essential to know what powers and obligations you have under a lease agreement and what happens if you default. The main elements of a lease agreement that need to be agreed to before they are executed are the rent terms, duration, responsibilities of the landlord and tenant, and termination clauses. These are described below further.
Rent terms include the amount of rent to be paid each month, the due date that the rent will be paid, how the rent will be paid, acceptable forms of payment, whether there will be any late fees for failure to timely pay rent, whether the tenant will be responsible for reimbursing the landlord for the cost of any utility services provided by the landlord to the tenant, and whether utilities are included in the monthly rent.
The duration of a lease agreement typically is one year. The parties have the option to list the expiration date of the lease or provide language whereby the lease will automatically renew unless terminated by either party. Most residential leases automatically renew on a month-to-month basis. The expiration of a lease agreement is known as the "termination date."
Both landlords and tenants are responsible for the maintenance of the premises during the term of a lease. The specifics of the parties’ responsibilities and obligations to maintain the premises should be listed prior to executing the lease so that there are no disputes about any issues that may arise later.
Process of Executing Lease: What Tenants and Landlords Need to Know
Once the terms and conditions of the lease agreement are fully negotiated and agreed upon by both parties, a written lease agreement is prepared. The next step is for the landlord and the tenant to execute the agreement. Neither party is obligated to perform unless and until the lease has been properly executed. Simply put, execution means signing the written lease agreement. A tenant who has signed a lease for space but has not delivered the lease to the landlord may change his or her mind and decide not to take the premises. In such case, the tenant would not be bound by the lease and could instead pursue other space if they are able to find something more suitable. A landlord does not have to honor a signed lease until it has received the lease document back from the tenant. Therefore tenants need to be careful about how they go about this process. A tenant needs to read the lease thoroughly and make sure it is exactly as intended, including all exhibits and attachments. There should be no blanks in the document. If there is anything that is not clear, it should be discussed with the landlord and resolved, in writing, prior to signing the document. If a tenant executes the lease and then tries to change its mind, the landlord will most likely pursue its rights against the tenant, including its right to insist that the tenant perform under the lease, as well as its right to manage the situation by seeking damages for breach of contract. It is even possible that a court might rule that the landlord has sustained damages resulting from the tenant’s failed attempt to negotiate a better deal, and award damages to the landlord. By contrast, a properly executed lease would provide the tenant with the security of being able to rely on the landlord’s promises for the entire duration of the lease term. This means that the tenant’s rent cannot change from what is set out in the lease agreement, even if market rental values go up. If the premises become unsuitable for the tenant’s use (perhaps because of a fire or earthquake), the tenant has a right to restore the premises and return to business in a reasonable amount of time without having to move out. The tenant’s ability to rely on the lease terms is the reason why it is important for a lease to be fully executed before the construction of tenant improvements, the use and occupancy of the premises, or the payment of first and last month’s rent. For a lease to be properly executed, it must actually be signed by both the landlord and the tenant. No specific number of signatures is required by law. A single signature by someone representing both parties is generally not enough. Even though a lease may contain a properly "dated" signature block, what really counts is whether the document is signed by both parties. This is important because until all parties have signed the document, it is not yet a legal and binding contract. This means that neither party has any legal obligations to the other, and neither party would be able to enforce the lease. It is common for landlords and their agents to sign a lease prior to a tenant’s signature. For example, some landlords sign a lease and deliver it to the tenant without the tenant’s signature. When this happens, the lease is only binding on the landlord. Therefore, once the tenant signs the lease, it must deliver the signed document back to the landlord in order for the lease to be binding on both the landlord and the tenant. Tenants should make sure that they have a complete copy of the lease document that was executed, and that it is signed by both the tenant and the landlord. Failure to do so could have disastrous consequences, as the tenant might discover after the fact that it has no right to occupy the premises because the lease is not binding. This could happen after significant investments have been made in the property. Furthermore, if a dispute were to arise, a court would have nothing to enforce if neither party has actually signed the lease. Unfortunately for the tenant, there would be no basis for a monetary award if it has never been bound by the lease.
Legal Consequences of Executing Lease
Once the commercial lease is fully executed, both the landlord and tenant’s obligations are generally binding and enforced under Tennessee law. A critical component of enforcing the commercial lease is the agreed to start date. To this end, many landlords seek to include a clause delayed the effectiveness of the lease until certain conditions are met, such as obtaining financing, or completing a buildout. These clauses are helpful as they provide the tenant additional time to obtain financing and reduces opportunities for conflict regarding whether the tenant has timely taken possession.
Once a commercial lease is fully executed and the tenant has taken possession, the landlord and tenant’s relationship is governed by the terms of the commercial lease. Depending on the language of the executed lease, both tenants and landlords will have a right to exclusive use of the property. For example, if the tenant obtains an exclusive use clause the tenant may be able to prevent the landlord from leasing space in the same building to a competing business. Alternatively, some commercial leases include a right of first offer. These types of clauses are put in place to ensure that the original tenant has first opportunity to rent additional space in the future. The enforceability of both of these clauses will depend on the intent of the parties as expressed in the executed commercial lease.
Any violation of the executed lease by either party will result in the right to damages. Many times the damages are liquidated , or calculated by taking the market value of rent at the time of the lease agreement and subtracting any actual rent being paid. This calculation formulates the value in unpaid rent for the lease term. If the lease promises work to be completed before the tenant takes possession, such as a buildout, and the landlord fails to do so, the tenant will also be entitled to the cost of completing the buildout.
If the tenant violates an exclusivity clause, then the landlord may have a cause of action for lost profits. However, if the tenant continues to occupy the leased premises and pays the rent, then the landlord may only have the right to enjoin the tenant from using the space in a manner not contemplated in the lease or to recover damages for the breach of the exclusivity provision.
Tennessee law has established a "self-help" remedy when the landlord has a right of entry and reentry for nonpayment of rent. Tenn. Code Ann. § 66-28-402. In some instances, the landlord can enter onto the property and either remove, or keep out the tenant from the leased premises. Additionally, at the time of eviction the landlord is entitled to recover the reasonable value of the property excluding compensation for the tenant’s personal property. Tenn. Code Ann. § 66-28-403.
If, and when, either party violates the obligations established in the Tennessee Commercial Leases Act, it’s important to consult an attorney in Tennessee to explore the options available and to better understand your rights and obligations under the agreement.
Common Problems With Lease Execution
Even the most precise, well-crafted executed lease agreement can run into trouble. The owner and tenant may ultimately come into conflict over how to interpret certain terms of the lease. Common issues include but are not limited to:
- Discrepancies in the terms of lease (e.g. is a handshake handshake amendment to the lease binding?)
- Disputes between owner and tenant about who is responsible for maintenance and repair of the premises
- Rent disputes (e.g. when a tenant has fallen behind on rent because of an emergency)
- Disputes concerning default under the lease (e.g. tenant stops paying rent for no apparent reason)
- Dispute concerning default under commercial leases (e.g. owner refuses to fund needed repairs to the premises)
- Dispute concerning guarantors under a commercial lease (e.g. a commercial landlord has signed multiple leases with different tenants and landlords wants to enforce the guarantee of someone no longer affiliated with the business)
The above are just a few examples of the types of disputes that may arise after a lease agreement is executed but before it closes. The parties should strive to resolve any pre-closing disputes without litigation, If the parties cannot resolve their pre-closing disputes, they should seek counsel of individuals trained in conflict resolution to help mediate the disputes.
Tips on Amending Executed Lease Agreement
Altering an executed lease agreement can seem impossible to a tenant or a landlord. How can the document, signed in its entirety by both parties, be legally altered with the consent of both parties? The path for modification is laid out and clear, but many tenants and landlords suffer from a lack of understanding of applicable laws, or simply forget that amendments are common and that they are allowed to make them to their own leases after execution.
For commercial and residential leases alike, a formally executed lease does not have to be the final version of a lease. Landlords and tenants retain the right to amend until a lease is canceled or terminated – so long as each party explicitly agrees to the amendment in writing through a physical signature on a separate document. Oral statements, written correspondence and other forms of expression will not represent legal amendments to the lease agreement, and no attorney is needed to execute an amendment.
Amending an executed lease agreement is not a bad practice , and legal representation is rarely required. Just as the original agreement was written to help interpret the law between landlord and tenant, the amendment can be created in order to properly reflect the agreement between landlord and tenant after execution.
It is important to fully review the scale of the proposed changes before creating an amendment, as some amendments can become so broad that they require the lease agreement to be rewritten from scratch. The lessor and lessee should also consider the language used in the original executed lease, and should attempt to write the amendment in a similar style and language in order to maintain the same meaning.
Legal representation is only required if the alteration appears too complicated for the landlord and tenant to properly handle on their own, if they suspect the amendment could become a source of legal contention or if any litigation is already present between landlord and tenant.