BOMA Commercial Real Estate Law & Regulations 2 — Questions and Answers
Question 1: What does 'estoppel certificate' require a commercial tenant to certify?
- The accuracy of the lease terms, current status, and absence of landlord defaults as of a specific date (Correct answer)
- The tenant's financial statements for the past three years of operations
- Compliance with all applicable laws and regulations in the tenant's leased premises
- The tenant's insurance coverage types and limits required under the lease
Correct answer: The accuracy of the lease terms, current status, and absence of landlord defaults as of a specific date
An estoppel certificate is a written statement by the tenant confirming key lease facts (term, rent, options, defaults) that is binding on the tenant and relied upon by potential buyers or lenders.
Question 2: What is 'privity of contract' relevant to in commercial lease assignments?
- Only parties directly in contract with each other can enforce the contract's obligations against one another (Correct answer)
- The right of all building occupants to enforce lease terms against the landlord
- A legal principle requiring commercial leases to be in writing to be enforceable
- The requirement that lease assignments be recorded in public land records
Correct answer: Only parties directly in contract with each other can enforce the contract's obligations against one another
Privity of contract means only the original contracting parties can enforce a contract; in lease assignments, the original tenant may remain liable because the landlord has no privity with the assignee.
Question 3: What does the 'implied warranty of suitability' in some jurisdictions require of commercial landlords?
- That the leased premises are suitable for the tenant's intended commercial purpose at lease inception (Correct answer)
- That all building systems meet manufacturer specifications at the start of occupancy
- That the building is free of environmental contamination before the lease begins
- That the space meets all current building code requirements throughout the lease term
Correct answer: That the leased premises are suitable for the tenant's intended commercial purpose at lease inception
Some jurisdictions recognize an implied warranty that commercial premises are suitable for the tenant's intended use, giving tenants a remedy when the landlord knows the space cannot serve the intended purpose.
Question 4: What is the 'statute of frauds' requirement for commercial real estate leases?
- Leases exceeding one year must be in writing to be enforceable (Correct answer)
- All commercial leases must be notarized and filed with local authorities
- Landlords must provide written disclosure of all known defects before lease execution
- Commercial leases must include a written statement of all material terms
Correct answer: Leases exceeding one year must be in writing to be enforceable
The Statute of Frauds, adopted in virtually all US states, requires leases for more than one year to be in writing and signed by the party to be charged to be legally enforceable.
Question 5: What does 'landlord's lien' on tenant property mean in commercial leasing?
- The landlord's security interest in tenant's personal property located in the leased premises to secure rent obligations (Correct answer)
- The landlord's right to retain the tenant's security deposit for unpaid rent
- A lender's claim on the leased property securing the landlord's mortgage
- The landlord's right to remove and sell tenant improvements upon lease expiration
Correct answer: The landlord's security interest in tenant's personal property located in the leased premises to secure rent obligations
Some states give landlords a statutory lien on tenant's personal property (equipment, inventory) in the leased space as security for unpaid rent, though many states have abolished this.
Question 6: What is 'commercial property tax assessment appeal' and why do building owners pursue it?
- A formal process challenging the government's assessed property value to potentially reduce tax liability (Correct answer)
- An annual review of operating expenses to identify tax-deductible building costs
- An IRS audit defense process for commercial real estate depreciation claims
- A formal complaint filed when tenants dispute their share of property tax pass-throughs
Correct answer: A formal process challenging the government's assessed property value to potentially reduce tax liability
Property tax appeal is a process where building owners challenge the assessor's valuation of their property, arguing it is over-assessed relative to market value, potentially resulting in lower property taxes.
BOMA Commercial Real Estate Law & Regulations 2
What does 'estoppel certificate' require a commercial tenant to certify?