A business that leases real estate and improvements (buildings, etc.) in the form of space for offices, a warehouse, a restaurant, a nail or hair salon, a clothing store, a coffee shop, or other commercial (nonresidential) space will usually be required to sign a written contract known as a commercial lease agreement.

The tenant (the business occupying the space) who signs a commercial lease agreement is generally expected to be a more savvy, sophisticated, and informed tenant (also known as a lessee) than a tenant in a residential lease, and the law usually does not provide a commercial tenant with the same protections as residential tenant receives.

Because the law does not provide a commercial tenant with as many protections, it is up to the commercial tenant to read, understand, and negotiate protections in a proposed lease agreement before signing it, as most every paragraph in a commercial lease agreement can have a significant impact on a business’s operations and financial stability.

But in some states courts have recognized an implied warranty against latent defects (defects not easily visible) in commercial leases. Courts that have recognized this implied warranty against latent defects in commercial leases have generally called it an “implied warranty of fitness or suitability for purpose” (the purpose being the tenant’s intended use) or “implied warranty against latent defects” and defined it to include:

• persistent water leaks through the roof, ceiling, or walls

• serious defects in the sewer or drainage systems

• inadequate or defective heating, ventilation, and air conditioning (HVAC), electrical, security, fire and smoke alarm, or other essential system, or

• latent physical or structural defects.

The implied warranty of fitness or suitability for purpose can generally be waived in the written lease agreement.

The law governing commercial leases varies from state to state but generally consists of a state's contract law (as applied to the lease agreement)—and in some states, includes the statutes enacted by the state's legislature that specifically apply to commercial tenancies, or that generally apply to both residential and commercial tenancies.

In New York, a commercial lease agreement is a binding contract between a landlord and a business tenant for the rental of nonresidential property, such as office space, warehouses, or retail locations. Unlike residential tenants, commercial tenants are considered more knowledgeable and are expected to negotiate the terms of their leases, as they are not afforded the same level of legal protections. New York law does not typically provide an implied warranty of fitness or suitability for the intended purpose in commercial leases, meaning that the tenant is responsible for ensuring that the property meets their needs before signing the lease. However, tenants and landlords can negotiate terms that address potential latent defects, and these terms should be clearly outlined in the lease agreement. It is crucial for commercial tenants to thoroughly review and understand all aspects of the lease, as it can significantly affect their business operations and financial health. While New York contract law governs the enforcement of commercial leases, specific statutes may also apply to commercial tenancies. It is advisable for commercial tenants to consult with an attorney to navigate the complexities of commercial leasing in New York.