What Makes A Lease 'Enforceable' - What You Need To Know

Who must sign? Does whether an entity is in "good standing" really matter?

Leases are often not given the same attention as other types of contracts with respect to issues of corporate authority and enforceability. Proof of authority is often an issue in the context of leases and related documents. What you need to know.

Who Must Sign?

The question of who must sign a lease in order for it to be enforceable is a question of state law and the terms of the tenant entity's governing documents.

The basic rules are as follows:

A corporation's bylaws, a limited liability company's operating agreement and a partnership's partnership agreement will typically state the identity and number of the officers that are duly authorized to execute different types of documents for such entity. In such event, the tenant may provide landlord with a copy of the governing document. A resolution or unanimous written consent duly adopted by the a tenant entity's board of directors may also specifically authorize one or more individual officers to bind the tenant entity to lease documents. In this event, the tenant may provide landlord with a copy of the duly authorized resolution, often accompanied by a secretary's certificate that the resolution was duly adopted or the consent authorized in accordance with the entity's governing documents. A secretary's certificate may also certify the terms of minutes and a proper vote authorizing a specific officer or officers to bind the entity. Often a tenant will advise the landlord that one officer is authorized to bind the entity to the lease. But, unless such tenant entity can provide proof that one officer or representative is in fact authorized by proper action, a landlord is at risk of a claim that the lease was not duly authorized and is therefore not binding.

California Corporations Code Section 313 states that a document executed by (1) the chairman of the board, the president or any vice president (the "operational" officers) and (2) the secretary, any assistant secretary, the chief financial officer or any assistant treasurer (the "financial" officers), is not invalidated for lack of authority of the signing officers unless the other party is aware that the signing officers did not actually have proper authority. This statute provides for a "presumption of authority" when two officers sign the document at issue. The California case Snukal v. Flightways Manufacturing, Inc. (2000) 23 Cal 4th 754 confirms this...