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Can I Get Out of a Lease if the State Refuses to License My Business?

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Many times real estate and business litigation happens because one or both parties to a transaction fail to get all their legal ducks lined up beforehand. If you sign a commercial lease, for example, you need to make sure your business has, or can obtain, all of the necessary permits before you open your doors. A landlord may not let you out of your lease just because you run into regulatory roadblocks.

Lack of “Urban” Designation Leads to Landlord-Tenant Litigation

A few years ago, two women decided to open a daycare center in Orlando. They signed a five-year commercial lease, which they personally guaranteed, for space in a shopping center. The lease required the tenants to comply with all local laws and to make sure any children remained inside the premises at all times.

The latter condition presented a conflict with Florida law. The State will not license a daycare center unless it has a certain amount of “outdoor play space.” However, “urban” daycare centers may be exempt from this requirement.

The tenants initially assumed this exemption applied to them, but the Florida Department of Children and Families (DCF) ultimately determined the location was not “urban”. DCF refused to grant a permanent license unless the daycare constructed outdoor play space. Since the daycare was unable to do so, they “abandoned the premises” approximately one year into the five-year lease.

The landlord then sued for possession and demanded “past and future rent” from the daycare and its owners. The courts agreed with the landlord on possession. After all, the daycare had already abandoned the property but the rent issue remains pending. A Florida appeals court recently held the landlord was not entitled to summary judgment on this question because it was not clear “whether it was foreseeable at the inception of the lease” that the State would refuse to recognize the tenants’ business as an “urban” daycare.

Do You Need Help Negotiating a Florida Real Estate Commercial Lease?

In cases like this, courts look to the lease to determine how much risk was “allocated” among the parties. If a risk was “foreseeable at the inception of the lease,” the appeals court explained, “then there exists an inference that the risk was either allocated by the contract or was assumed by the party.” The problem here was that the lease, as written, did not “explicitly allocate” the specific risk that the tenant would fail to obtain a permanent daycare license. A judge or jury may ultimately sort out this allocation of risk.

When negotiating any kind of lease or real estate transaction, it is important to make the terms as clear as possible. Obviously, it is impossible to plan for all possible contingencies. However, if there are known risks, or potential risks going into the deal, make sure you and the other party are on the same page. Never assume anything!

If you need assistance from an experienced St. Petersburg, Florida, Real Estate Attorney in negotiating a lease or drafting any similar type of contract, contact Kira Doyle Law today, at (727) 800-3782.