Can a contract alter a lease?

Question

I rent an office in a small office building in Connecticut. I've leased this office for many years and currently don't have a lease. The owner of the building has decided to sell, and the new buyer has contacted me and asked me to sign a lease.

There is absolutely no benefit to me to signing a lease. Office space is plentiful locally, so the new owner needs me more than I need them. However, the buyer informed me today that if I don't sign a lease, the mortgage won't be approved. I don't want to be the guy who killed a real estate deal and end up with both the current owner and future owner mad at me. So the buyer proposed writing a contract "on the side" between us that releases me from the lease if I provide 90 days notice. The mortgage lender would be unaware of this contract. I'm amenable to that, but it raises some questions:

1. Concealing the contract from the mortgage company is probably credit fraud of sorts, but my view is that's the buyer's problem, not mine. Am I correct on that?

2. Would it be a legal, enforceable contract? If I give 90 days' notice and the landlord refuses to release me from the lease, would a court find in my favor?

3. Am I missing other legal pitfalls?

Answer 1

Can a contract alter a lease?

Yes. A lease is a contract and, as such, is amenable to mutually agreed modifications.

my view is that's the buyer's problem, not mine. Am I correct on that?

Yes. The problematic scenario might be if you were planning to leave the building in the foreseeable future and the new buyer intentionally concealed that knowledge from the lender. That could be actionable as conspiracy with --or abetting of-- the new buyer. Your description does not reflect any plans of yours to vacate the premises, though.

Would it be a legal, enforceable contract?

Yes. However, it is utmost important that the "separate" contract make it clear the superseding effect it has on the full contract that is presented to the lender.

The primary reason for this is that, when interpreting a contract, a court is supposed to restrict its review to the language of the contract only. Any external records are ignored unless they explicitly relate to the contract, or in situations where the language of the contract lacks guidance as to the controversy at issue.

Also, without proper reference to the official lease, the separate provision would look as a one-sided promise rather than an exchange of considerations (by definition, a contract is an exchange of considerations). Thus, you would be more vulnerable to the new buyer's eventual decision not to honor the provision.

Strictly speaking, the separate contract with no references to the official lease could make it clear that your consideration was in the form of helping the new buyer in his mortgage process. However, for obvious reasons the new buyer will refuse to reflect that in the separate contract. Hence, your protection consists of ensuring that the relation between the official contract and the separate contract is explicit in the latter.

Answer 2

1. Concealing the contract from the mortgage company is probably credit fraud of sorts, but my view is that's the buyer's problem, not mine. Am I correct on that?

He is guilty of fraud - using deception to receive a benefit. You are guilty of accessory to fraud. You are both guilty of conspiracy to commit fraud.

2. Would it be a legal, enforceable contract? If I give 90 days' notice and the landlord refuses to release me from the lease, would a court find in my favor?

No - a contract entered into for a criminal purpose is void. This applies to both the lease and the side deal but because voiding the lease would adversely affect the mortgage, it would probably be upheld for equity reasons (promissory estoppel).

Answer 3

Normally a lease can be modified by agreement of the parties to it. A lease is, after all, simply a particular kind of contract, and unless a contract specifies that it cannot be amended, any contract can be altered by mutual agreement.

However, in this case the lease is being submitted to the mortgage lender, presumably as part of the evidence that the buyer will have enough income to pay the mortgage. You know this. Your "side agreement" so modifies the lease as to make it materially deceptive to the lender, and you will be complicit in that deception, and therefore in fraud.

If you do not wind up wanting to leave your rental before the 'official" lease would let you leave, the side agreement is of no value to you, and is pointless. If you do leave early, excising your rights under the side agreement, the fraud would have resulted in actual damage to the lender, as it would increase the risk of default by the borrower (the new owner). In such a case the side agreement and the deception over the lease might well come to the attention of the lender.

Whether the lender would then take legal action, no one can say. If the borrower was able to find another tenant, or make the mortgage payments out of other resources, quite probably the lender would not choose to sue.

Since you did not revive any direct benefit from the deception (except the good will of your former and future landlords), it seems a bit unlikely that you would be criminally prosecuted for fraud. But if the facts came to light, you probably could be prosecuted with a chance of success.

You might want to find out what is the least restrictive lease that would be acceptable to the lender, and whether you could sign that without an undue burden to yourself. Perhaps there is some offsetting concession you could obtain. That would avoid any specter of fraud.