One client I know of entered into a ground lease for a pad in a shopping center parking lot so it could put up a building to house its restaurant. When the excavation began for the building's foundation the client discovered that much of the site contained fill material that would not safely support the weight of the planned building. The unsatisfactory fill material had to be dug up, hauled away for disposal elsewhere, and replaced by more stable material, all at a cost approaching $100,000. Who do you think was responsible for that expense, and why?

THE CRITICAL WARRANTY: Included in the ground lease at the request of the client's lawyer were a number of warranties and representations made by the landlord. One of them was that, to the best of the landlord's knowledge, the soil at the leased site was sufficient to support the weight of the client's planned building. It did not take long to determine that some years earlier when the landlord was constructing the shopping center it or one of its contractors decided to dump the inadequate fill material at this site. The landlord's leasing manager was unaware of this, did not check with the landlord, and saw no problem with putting the requested warranty and representation into the lease. Very fortunate for the client. Not so for the landlord. It had breached that warranty and as a consequence was responsible for the client's resulting damages.

HOW TO USE WARRANTIES: The landlord almost always is in a better position to know the history of the leased premises than the would-be tenant. By using warranties and representations like the one that saved the client, the tenant can keep the landlord from failing to disclose important matters known to the landlord, or make the landlord responsible for damages arising from the failure to inform the tenant. By demanding that the landlord make only "best of its knowledge" warranties and representations the tenant is saying, "look, we are not asking for any absolute guaranties, we just want to know up front about potential problems that you know about." In other words, no secrets allowed. Other useful warranties are that the landlord is unaware of any labor, hazardous substances, legal, condemnation, construction code, encumbrance, or zoning problems that could interfere with the tenant's construction or the operation of its business at the leased location.

With over 20 years experience Stu Heller helps his clients make smarter business and leasing deals. His website is at www.theleasinglawyer.com and his office is located at 1325 4th Avenue, Suite 940, Seattle, Washington 98101. He can be reached at 206-623-0579, fax 206-682-7972, heller@theleasinglawyer.com and hellerlaw@aol.com. Contact him for a free initial consultation or to get his Leasing Tips emailed to you. Be sure to consult your lawyer before applying any of the above to a particular situation.