making a dealStandard Forms are “Starters” Only

Recently, we resolved a matter that had its genesis in one “standard” real estate form known as the Property Information Sheet (“PIS”) drafted by AIR Commercial Real Estate Association.

Its stated purpose is to provide brokers and a potential buyer/lessee with important information about the property or premises which the owner has actual knowledge.

It may be better practice to not use the PIS at all (some don’t), or strike the “potential buyer/lessee” languageso it is used (i.e., so the broker can counsel the landlord about disclosures and remedial work), or to give it to a prospective tenant/its broker when one gives or receives the lease before it is signed. One potential problem in giving it prematurely is chilling leasing activity when the landlord has every intention of fixing a disclosed problem before the tenant takes possession. Then, the landlord may sue for THAT!

It turns out that at least one large commercial brokerage does NOT give it to prospective tenants. That’s what happened in this case, in part because the PIS really disclosed nothing that needed to be disclosed.

When a new tenant signed a lease, then discovered some problems with the space during TI (Tenant Improvement) demo work, it sued the landlord, who settled with the tenant. The PIS had not mentioned the condition that caused the problem and had affirmatively represented that the problem did not exist.  However, it had mentioned that the landlord was suing its seller for construction defects, but that such would not interfere with anyone’s occupancy.

The landlord then sued the broker for not having given the PIS to the tenant before the latter signed the lease. The landlord’s claim was that, if the tenant had received the PIS, the tenant’s claim would have been fatally defective because the tenant could have looked at the lawsuit between the landlord and the landlord’s seller to see that a condition was mentioned that may have given notice of the particular problem encountered during the TI demo work. (Whether that’s true or not is another story.) The broker’s insurer settled with the landlord after three (3) mediation sessions and tens of thousands in legal fees on both sides.

Being a commercial real estate broker is difficult enough. Relying upon standard forms may make it easier in some regards, but may be a trap for the unwary, making it much more difficult in others. Read them carefully and decide what to use, what to strike, what to disclose, what to document in some other way.  Beware!