The parties clause names the legal entities bound by the lease, one as landlord and one as tenant. Related provisions confirm that the people signing have authority to commit those entities and describe how the lease becomes binding. If the wrong entity signs, or the right entity signs through the wrong person, the lease can be hard for either side to enforce.
What this clause does
Every obligation in your lease, from rent to roof repairs to restoration at move-out, attaches to whoever is named as a party. That sounds obvious, yet it is a place where deals quietly go sideways, because the name on the letter of intent is often a trade name, a parent company or a division rather than the legal entity that will actually sign.
The lease should identify each party by its exact legal name, its entity type and the state where it was formed. A California LLC and a Delaware corporation with nearly identical names are two different companies with two different balance sheets. The landlord is underwriting one specific entity, and you are committing one specific entity.
Most standard Southern California industrial lease forms also include a statement that each person signing for an entity has the power to bind it, plus language making co-tenants jointly responsible when more than one party signs as tenant. In plain terms, if two companies or two individuals sign as tenant, the landlord can pursue either one for the full amount.
Choosing the right tenant entity
Which entity belongs on the lease depends on how your company is built. A sole proprietor with no entity takes on the obligation personally, and in some states the landlord may ask a spouse to sign too. Forming an entity before you sign protects your household, even if the landlord still asks for a personal guaranty on your first lease.
Growing companies change ownership as they raise capital. Many leases let the landlord request financials from a new majority owner, and some treat a change of control like an assignment that needs consent. If you expect to raise money or sell, say so now and negotiate language that lets ordinary financing events happen without the landlord's approval.
Mature companies with local operating subsidiaries face a different question: can the local company carry the lease by itself, or will the landlord want the parent involved? Be ready to explain how your entities report and consolidate. Putting the operating subsidiary on the lease can keep the parent out of it, but only if the subsidiary's own financials support a multi-year obligation.
Authority and good standing
Expect the landlord's attorney to confirm that your entity exists and is in good standing with the secretary of state, both where it was formed and where the building sits. For corporations and LLCs this is usually a quick online search. Other entity types, such as limited partnerships, can take much longer to confirm.
Entities fall out of good standing more often than executives realize, usually over a missed filing or an unpaid franchise tax, and the state does not always send a warning. Check your status before lease drafts circulate, not the week you plan to sign. On a relocation with a hard move date, a last-minute status problem can ripple through your whole schedule.
For authority, landlords commonly ask for a corporate resolution or an officer's certificate confirming who may sign. Some states, and some company bylaws, call for two officers. If you are the owner, ask for this whenever the person signing is not an obvious officer of the tenant.
How signing actually works
A lease generally is not binding until both sides have signed and delivered it. Many owners, particularly smaller private landlords, will not countersign until they hold the tenant's signed lease and the money due at signing, typically the first month's rent and the security deposit, and those funds have cleared. Electronic signatures and separate signature pages are widely used, but the lease should say they count.
Keys usually come later still. Most landlords will not hand over possession until they also have a certificate of insurance that matches the lease requirements. Build a few days for these steps into your move plan so paperwork does not hold up trucks, racking crews or your IT installer.
Keep one complete, fully signed copy with every exhibit and amendment where your successor can find it. The people who negotiated the deal often move on long before the lease ends. Before anyone signs, have a real estate attorney review the final document, including the entity names and signature blocks.
If you are the tenant
- Confirm the exact legal name, entity type and state of formation on the lease match your corporate records and your good standing certificate.
- Check your entity's status with the secretary of state before lease drafts go out, and cure any lapse early.
- If a financing round, merger or sale is possible, negotiate language so a change in ownership does not count as a transfer requiring landlord consent.
- Ask exactly how much is due at signing and how to pay it, then send it with the signed lease so countersignature is not delayed.
- Line up your certificate of insurance before the possession date so keys are not held back.
If you are the owner
- Verify the tenant entity on the secretary of state website and make sure it is the same entity whose financials you reviewed.
- Ask for a corporate resolution or officer's certificate whenever the signer's authority is not clear.
- Do not countersign until the signed lease is in hand and the funds due at signing have cleared.
- Be cautious with newly formed entities whose principals and assets sit outside the United States; enforcing the lease may be difficult, so a larger deposit may be your practical protection.
Go deeper in Justin's books
Both books walk through leases chapter by chapter, from the tenant side and the owner side.
Make sure this entity is valid, that it is the same entity whose financials you recently reviewed, and that it is licensed to do business in the state where the property is located.
Common questions
Who should sign a commercial lease for an LLC?
Someone the LLC has authorized to bind it, usually a manager, managing member or officer named in the operating agreement or a written resolution. The landlord may ask for proof of that authority. Sign in the company's name with your title, not as an individual, so you do not accidentally become a personal party to the lease.
Can a landlord require the parent company to sign the lease?
A landlord can ask, and many will when the local entity's finances are thin. Common alternatives include a parent guaranty, a larger security deposit or a letter of credit. Which one fits depends on how your company is structured, so walk the landlord through your organization chart early.
Is a lease binding if only the tenant has signed it?
Generally a lease is not binding until both parties sign and deliver it, and many landlords wait for the tenant's funds to clear before countersigning. Until then, treat the deal as unfinished and hold off on commitments you cannot undo. Ask your attorney how your specific lease handles execution and delivery.
General information about how industrial leases commonly work, not legal advice. Every lease is different: have a California real estate attorney review yours before you sign.