Determine Authority of Landlord’s Liaison

August 11, 2016
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It’s crucial to make sure you know who you are dealing with when you sign your lease for commercial space. That is, whether the party you’re interacting with for the deal has the authority to negotiate and execute the lease. It might seem like if a person who isn’t the owner of a space you plan to rent signs the lease, you could potentially wriggle out of lease obligations you don’t like if a dispute arises later. But a Michigan tenant learned the hard way that its lease signed by the owner's agent was enforceable, even though the agent didn’t own the property herself. 

In that case, a woman purporting to be the owner of a property signed a lease with a tenant to operate its auto body shop. The lease required the tenant to make necessary repairs and improvements, and it specified that those improvements would be left behind at the end of the lease. The tenant made substantial improvements to the building. After a dispute, the tenant began paying its rent into an escrow account. The owner threatened to repossess the space. The tenant claimed that the lease wasn’t valid because it had learned that the property wasn’t owned by the woman who signed the lease; rather, it was owned by her son and daughter. Therefore, the supposed lease terms requiring it to pay rent directly to the owner and to leave its improvements didn’t apply.

The owner and the tenant each asked a trial court for a judgment in its favor without a trial. The trial court dismissed the tenant’s claims, and said the owner was entitled to repossess the property and the tenant must leave its improvements. The tenant appealed, but a Michigan appeals court upheld the trial court’s decision.

The appeals court determined that the lease was valid because although the person who signed it was not the owner, she was an “agent” of the actual legal owners. The legal owners testified that she handled all of their matters related to leasing the property. The appeals court decided that this was sufficient to make her an agent with authority to enter into leases. The appeals court said that, because the lease was valid, the terms requiring the tenant to leave behind its improvements and pay rent directly to the owner (despite any disputes) were enforceable. The tenant’s withholding of rent entitled the owner to repossess the property [Exclusive Auto v. Mattawan Holdings, April 2016].