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 Tennessee, businesses entering into commercial lease agreements for various types of spaces, such as offices, warehouses, or retail stores, are expected to engage in these contracts with a higher degree of knowledge and sophistication compared to residential tenants. Tennessee law does not provide the same level of statutory protections to commercial tenants as it does to residential tenants. Therefore, it is crucial for a business to thoroughly review, understand, and negotiate the terms of a commercial lease before signing. This includes ensuring that the lease terms align with the business's operational needs and financial considerations. While some states recognize an implied warranty against latent defects in commercial leases, it is important for tenants to be aware that such warranties can often be waived in the lease agreement. The regulation of commercial leases in Tennessee is primarily governed by state contract law and may also be influenced by specific statutes related to commercial tenancies. An attorney can provide valuable assistance in interpreting and negotiating commercial lease agreements to protect a business's interests.