Don't Attach Unsigned Agreement to Lease as Exhibit

Don't attach a copy of an ancillary agreement to the lease as an exhibit unless the agreement has been signed, warns Ohio attorney Abraham Lieberman. You and the tenant may end up modifying the agreement substantially before you sign it, or never sign it at all if negotiations over it break down. If you've attached a copy of the unsigned agreement to the lease, the tenant or a third party could argue—and a court could agree—that you're bound by the agreement and all its provisions, says Lieberman. And the tenant or third party could enforce these provisions against you, he notes.

That happened to a Tennessee owner. The owner and tenant attached a copy of an unsigned brokerage agreement to the lease as an exhibit. The brokerage agreement said the owner must pay half the commission when the lease was signed and the other half when the tenant occupied the space. The owner ultimately refused to sign the brokerage agreement because it was unhappy with the payment provisions. The owner paid half the commission when the lease was signed. The tenant occupied the space briefly—but it neither opened for business nor paid any rent. Then the broker sued the owner for the rest of the commission. The owner argued that since it hadn't signed the brokerage agreement, it had never agreed to pay the rest of the commission when the tenant occupied the space.

A Tennessee appeals court ruled that the owner must pay the rest of the commission as required by the brokerage agreement. The court noted that although the owner didn't sign the brokerage agreement, it knew that a copy of the unsigned agreement was attached to the lease. And the lease said that the brokerage agreement's provisions were incorporated into the lease. Signing the lease had the same effect as signing the brokerage agreement, said the court [Staubach Retail Services-Southeast, LLC v. H.G. Hill Realty Co.].

A Georgia appeals court ruled that the tenant hadn't properly exercised its right of first refusal. According to the lease, the tenant had to give the owner a contract with terms “identical” to the third party's offer. Because the tenant didn't do that, the court found, it was okay for the owner to refuse to accept the tenant's contract [Interfinancial Properties, Inc. v. Mary T. Cristal Trust].

CLLI Sources

Abraham Lieberman, Esq.: Member, Baumgartner & O'Toole, 5455 Detroit Rd., Sheffield Village, OH 44054; (440) 930-4001; alieberman@b-olaw.com.