Protecting Against Liability Issues In Retail Real Estate

From slip-and-fall lawsuits to allegations of wrongful lease termination, commercial property owners can be vulnerable to a wide range of legal claims on a near-daily basis. Anticipating and protecting against all potential legal claims can often be a full-time job in itself, and may leave you little time or energy to devote to the many other responsibilities that come with successfully managing a commercial property.

Read on to learn more about some of the most common types of legal claims against commercial property owners and how you, as an owner, investor, or property manager, might mitigate these risks. If you do face any kind of liability, casualty, or claim, you should immediately contact an attorney.

(This discussion below is not legal advice and is not intended to provide legal advice and you should consult with an attorney prior to taking any action.)

Potential Legal Claims Against Property Owners, Managers, or Investors

Most legal claims against commercial property owners fall into two main categories. The first is tort actions, which involve some sort of injury to person or property.  A typical premises liability claims is brought by an individual who was injured on the property, through, for example, encountering an allegedly dangerous condition on the property. The second category involves contractual claims, such as to enforce a lease or insurance policy.

Premises Liability

Slip and fall accidents

Even if you’ve outsourced much of the responsibility for maintaining safe premises to your tenants, you could find yourself on the receiving end of a lawsuit if a customer is injured in a common area like a sidewalk or the parking lot or if you failed to routinely make sure your tenants were fulfilling their obligations to keep their units in a clean, safe condition.

Both you and your tenant may be named as responsible parties in a slip-and-fall lawsuit. Depending on the tenant’s financial solvency and level of responsibility for the dangerous condition alleged, the injured plaintiff could see a property owner as the source of the “deep pockets” needed to compensate them for their medical bills and other expenses.

Even if you ultimately turn out not to be directly responsible for a customer’s injury, defending against a lawsuit can be time-consuming and expensive.  Carrying insurance to insure against these risks may help mitigating these risks.

Failure to Maintain Safe Premises for Lessees

Tenants may have claims against landlords for failing to maintain the property in a safe condition. While tenants may be responsible for the general condition of their own space, landlords typically have a responsibility to maintain the building’s structure, common areas, and overall habitability.

These lawsuits can be spurred by anything from a delay in fixing the building’s HVAC system to a pothole-filled parking lot that damages customers’ cars. Tenants who are successful in bringing this type of lawsuit may be able to recover compensation for their actual damages and/or “specific performance”—a court order requiring you to make specified repairs.

Often, maintenance of a dangerous property condition that leads to this type of lawsuit can also make you vulnerable to fines from your city or county’s zoning board. From a cracked sidewalk to a dangerously leaning tree, to grass that hasn’t been mowed in months, you may be assessed a per-day fine from your city for each day the condition goes unresolved.

Breach Of Lease Agreements

Covenants and restrictions

Most commercial leases have a number of covenants and restrictions that impact both the lessee and lessor’s behavior. For example, leases for retail shopping centers and strip malls often include a provision that prevents the owner or property manager from renting space to an anchor tenant’s competitors. Violating this provision, whether purposely or inadvertently, could quickly lead to a lawsuit for breach of contract.

Other covenants and restrictions may impose obligations on tenants, like requiring them to be open a certain number of days per week or to avoid the use of outdoor signs or displays. Permitting a tenant to openly violate their lease agreement could result in nuisance lawsuits from other tenants who are affected by this bad behavior, and may make it more difficult for you to enforce other provisions of the lease in the future.

Constructive eviction

Sometimes, a premises liability lawsuit brought by a commercial tenant can also allege constructive eviction—a safety or health issue that was so severe it required the lessee to vacate the property before the end of the lease term. Not only may a constructive eviction prevent a property owner from pursuing back rent or damages from the tenant who has ended the lease early, it can subject you to additional monetary damages to compensate the tenant for his or her time, trouble, and relocation expenses.

Actual fraud

In some rare cases, property owners may be sued for fraud. This can relate to a failure to disclose vital information at the time the lease was signed, like the fact that a property is slated for eminent domain seizure before the end of the lease term or that it was formerly used for the storage of hazardous materials Any alteration to the lease agreement without the consent of all parties can also be grounds for a fraud lawsuit. Not only may this subject you to financial liability, a verified fraud allegation may result in a criminal case as well.

Protecting Yourself Against Lawsuits and Legal Claims

While in a litigious society it’s virtually impossible to fully protect oneself from the prospect of ever being sued, it is possible to limit one’s financial liability when the inevitable lawsuit does occur.

Insurance

As a property owner, maintaining adequate liability insurance limits may be crucial to your financial security. A single slip-and-fall lawsuit can often be enough to wipe out an owner’s cash reserves. Having liability insurance can help you mitigate the risk, and provide coverage for the cost of attorneys, investigators, and the other professionals necessary to mount a strong defense.

To qualify for the best insurance rates, you may want to take some proactive steps to show your insurer you’re committed to preventing any dangerous conditions on the property that could generate a claim. Making regular inspections of tenants’ units, quickly responding to and arranging repairs for tenants who are experiencing structural or safety issues, and strictly enforcing a well-written lease will reduce your premiums while also reducing the risk of a lawsuit.

On-site or local property management

Whether you’re renting out just one single-family home or a multimillion-dollar commercial property, long-distance landlording can be a major challenge. Not only are you not as able to keep a watchful eye on the property to make sure your tenants are adhering to their lease agreements, you’re not able to monitor and respond to minor maintenance issues that could potentially become serious (and much more expensive) problems if left unaddressed.

Being a long-distance landlord can also make it harder to evict your tenants when or if the time comes. While you can send the requisite “pay rent or quit” notices to your tenants by mail and often file a lawsuit electronically, you’ll usually need to fly or drive to the area to appear at an eviction hearing unless you have a representative to appear in your place.

Many property owners find it beneficial to employ one or more property managers to handle the many duties that come along with maintaining a property and collecting rent from lessees. In exchange for a flat monthly fee or a portion of the rents collected, a property manager can be your local proxy, helping you deal with the vast majority of property-related issues that will arise.

Clear communication with lessees

Often, lawsuits are generated in part because of a lack of vital communication between the owner and the lessees. Whether lessees feel uncomfortable bringing issues to the owner’s attention because of the owner’s typical heavy-handed responses, or lessees are simply unable to get in touch with the owner at all, this lack of communication could allow dangerous conditions to fester unchecked.

Owners whose lease agreements are written in confusing or ambiguous ways could also be more vulnerable to a lawsuit. Many lessees may make assumptions when a lease isn’t specific when it comes to a certain issue, and these assumptions could have some majorly unexpected consequences for both you and your lessees.

By making your contact information readily available to your lessees, returning inquiries quickly (or giving your lessees a timeline for when you will respond), and making sure your new leases have been carefully vetted by an attorney who specializes in commercial litigation, you’ll be in a much better position to avoid a wide variety of lawsuits and legal claims.

Conclusion

While there are many potential risks and pitfalls to avoid, it is vital that you have competent legal counsel to help provide guidance and legal advice on all of these issues. If you should have any claim or believe a risk of a claim exists, please immediately consult with an attorney.

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