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 Vermont, as in many states, commercial lease agreements are governed by contract law and any specific statutes related to commercial tenancies. Unlike residential tenants, commercial tenants are not afforded the same level of legal protections and are expected to be more knowledgeable and proactive in understanding and negotiating the terms of their lease agreements. It is crucial for a business entering into a commercial lease to thoroughly review and negotiate the terms to ensure they align with their operational and financial needs. While Vermont law does not specifically codify an implied warranty of fitness or suitability for purpose in commercial leases, tenants and landlords may negotiate terms related to latent defects within the lease. These defects could include issues with the roof, HVAC systems, or structural integrity, among others. It is important for commercial tenants to be aware that any implied warranty can typically be waived in the written lease agreement. Therefore, it is advisable for a business to consult with an attorney to understand their rights and obligations under a commercial lease in Vermont and to assist in negotiating favorable lease terms.