In the Beginning, Creation of the Landlord Tenant Relationship

Negotiations

The landlord tenant relationship begins with negotiations between parties resulting in an express or implied contract for the use/possession of real property, such as a store, office, apartment, or house. The landlord and tenant are generally the parties to the negotiations and the resulting contract between the landlord and tenant is called as lease.

Lease

The lease should be in a writing signed by all parties so that every party or a judge, if necessary, is clear on the party’s respective rights and obligations. Further, a lease for more than 3 years must be in a writing signed by the parties. (68 P.S. § 250.201-202).

At a minimum, a lease should contain: the address of the real property, the lease duration and renewal terms, the rent amount (including late fees and increases), and the security deposit amount. You should consult an attorney before drafting or signing a lease to ensure all appropriate terms are included in the lease. The landlord will usually prepare the initial lease draft. There is generally minimal negotiation involved with a residential lease. However, the terms of every commercial lease can be very different and are more complex, and there is significantly more negotiation involved in these transactions.

Guaranty

In some instances, there will be a guarantor that will agree to guaranty some or all of the tenant’s obligations under the lease. The signing of a guaranty is more common with a commercial lease where the tenant is typically a single-purpose entity (such as a corporation or limited liability company) whose sole asset is the business operating in the property. A guaranty is useful in this situation because if the tenant has limited assets, goes out of business, or becomes insolvent or bankrupt, the landlord will have the ability to pursue the guarantor who is generally the individual principal(s) of the business entity. Unlike a commercial lease, a residential lease is usually signed by individuals so a guaranty is may not be necessary. However, there are certain instances where a guaranty may be useful in the residential context.

Because every lease transaction is different, you should consult with a local real estate attorney to obtain advice on issues and terms relating to your particular transaction. You should consult an attorney before signing a lease since there is little anyone can do to negotiate a contract after it has been signed.

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