Do Commercial Tenants Need to be Protected from Lease Fraud?

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four hands with pensLease Fraud…it happens in both the residential as well as the commercial real estate world. Commercial lease fraud mostly occurs at the title or owner level with the fraudster manipulating documents and going through legal channels to assume the role of an executor or officer of a commercial or mixed-use property and then placing a high mortgage on that property (unbeknown to the real executor, officer or owner) and using the money for personal use.

Now I should clarify that commercial lease fraud in Ontario is extremely rare – less than 2% of all commercial leases end up being reportedly fraudulent and the entities affected are usually the owners, investors, lawyers and brokers. But what about tenants? Can they be affected by lease fraud?

Well, truth be told, tenants should not be affected by lease fraud because property owners usually have professional underwriters and lawyers draw up and edit their lease agreements and insurance brokers that outfit them with the proper insurances (e.g. title insurance) to protect their real estate from any issue of “lease fraud” before such issues can affect the tenant.

However, there is the possibility of a tenant’s lease being interrupted or cancelled by the property owner due to circumstances beyond his control. Lease fraud? Not likely. But such an interruption can have serious implications on a tenant’s business.

So what can a commercial tenant do to protect itself from such a possibility? Here are some thoughts:

  • Review your lease with your own professional lawyers to see if there is a clause that speaks to such interruptions and details the responsibilities of both the tenant and the property owner. (If in the lease negotiation or renewal stage, this is a great clause to negotiate on so that the terms are fair for all parties involved)
  • Seek the professional aid of an insurance broker to ensure your business has the proper rental property and lease-related insurances it needs to protect itself against the unexpected (e.g. rental interruption due to natural disaster, leasehold insurance for situations where your lease is cancelled due to circumstances outside of your control)
  • Remain in good standing with your landlord or property owner. A good business relationship with your property owner could cause the property owner to “fight” to keep you as a tenant by recommending one of their other commercial sites to you.
  • Do not sign anything you do not fully agree to.

Like lease fraud, lease interruptions are a rarity, but protecting your business from such possibilities can certainly be a game changer for the survival of your business.

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DJ McGauley and Associates Inc. is your Office Move, Reconstruction and Reconfiguration Project Management Company of choice for the Toronto, GTA and surrounding areas. If an office move or reconstruction of your 2000 – 25,000sqft office space is a remote possibility, consider contacting us to arrange a no-obligation site meeting. We guarantee that by the end of that meeting you will know all that would be required to make your office move/reconstruction project a successful reality.

Call 416-239-1931 , email info@djmcgauleyandassociates.com, or visit our website to complete our contact form.

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