Reliance on Owner's Verbal Assurances Is Risky

Verbal assurances from any party in a commercial real estate lease are risky to rely on. As a tenant, be careful to make sure that important terms are in writing. A recent case that was dismissed by a New York trial court is a perfect example.

There, an owner signed a lease with a tenant that intended to operate a private school in its space after performing extensive renovations. After the owner wasn’t able to obtain an amended certificate of occupancy that would permit the tenant to operate a school, rather than a traditional commercial business the space was zoned for, the tenant sued. It claimed that the owner expressly warranted that it would apply for the amendment immediately, but hadn’t. According to the tenant, by the time it received the news that the request had been denied by the city, it was too late to reapply or make arrangements to operate the school in another location before the school year was to begin. The tenant also said that because it had to vacate the space since it was unusable for a school, the owner would be “unjustly enriched” by the extensive improvements it had made to the space while waiting for the amended certificate. The owner asked that the case be dismissed and a trial court granted the request.

The court noted that the lease’s “as is condition” provision specified that the tenant would not rely upon any verbal or written statements or representations by the owner as to “any matter relating to or affecting the premises.” In other words, by signing the lease, the tenant accepted the space with its current occupancy certificate, and it couldn’t rely on the owner’s failure to amend that certificate to allow for an educational use—regardless of whether the owner had immediately attempted to do so or had waited to apply for the change—to let it off the hook for paying rent.

The court also dismissed the tenant’s unjust enrichment claim. It said that the lease expressly provided that any improvements or renovations made by the tenant were being made at the tenant’s discretion and expense so that it could make use of the space. If the owner happened later to benefit from the improvements after the tenant moved out, as happens with many tenant improvements, it would be incidental [Yung Hua Tsang v. Berley, July 2014].