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Negotiating a Better Commercial LeaseNegotiating a Better Commercial Lease

Adam Leitman Bailey, P.C.Adam Leitman Bailey, P.C.

Presented byPresented by

Adam Leitman BaileyAdam Leitman Bailey

Negotiating a Better Lease for Negotiating a Better Lease for TenantsTenants

During the last five years, the pendulum of commercial leasing has begun During the last five years, the pendulum of commercial leasing has begun to swing. At common law, the doctrine of “caveat emptor” governed to swing. At common law, the doctrine of “caveat emptor” governed commercial leasing. By the 1970’s, New York courts, relying on commercial leasing. By the 1970’s, New York courts, relying on equitable principles, began to carve out exceptions to caveat emptor. equitable principles, began to carve out exceptions to caveat emptor. Equity gained greater currency and judicial decisions softened commercial Equity gained greater currency and judicial decisions softened commercial lease provisions that potentially endangered or evicted tenants.lease provisions that potentially endangered or evicted tenants.

Recently, New York courts at all levels have moved away from finding Recently, New York courts at all levels have moved away from finding equitable solutions to prevent harsh results or evictions and have applied equitable solutions to prevent harsh results or evictions and have applied the terms of negotiated lease provisions. Past judicial activism by judges the terms of negotiated lease provisions. Past judicial activism by judges protecting tenants’ rights has now evolved into a consistent enforcement protecting tenants’ rights has now evolved into a consistent enforcement and implementation of commercial leases. In many cases, no matter how and implementation of commercial leases. In many cases, no matter how draconian the lease provision, New York courts have been enforcing the draconian the lease provision, New York courts have been enforcing the contents of commercial leases.contents of commercial leases.


Except in a Commercial Lease:Except in a Commercial Lease:

"What's in a name? That which we call a rose by any other name "What's in a name? That which we call a rose by any other name would smell as sweet".would smell as sweet".

-Romeo and Juliet ( Quote Act II, Sc. II).-Romeo and Juliet ( Quote Act II, Sc. II).

Signing the LeaseSigning the Lease Tenant individuallyTenant individually Tenant individually with Good Guy GuarantyTenant individually with Good Guy Guaranty Tenant’s CorporationTenant’s Corporation Tenant’s Corporation with Good Guy GuarantyTenant’s Corporation with Good Guy Guaranty Tenant’s Shell CorporationTenant’s Shell Corporation


RepairsRepairs

Regarding repair responsibility, tenants Regarding repair responsibility, tenants should attempt to make the landlord liable should attempt to make the landlord liable

for all structural repairs to the demised for all structural repairs to the demised space and to the building, as well as space and to the building, as well as

nonstructural repairs occasioned by the nonstructural repairs occasioned by the landlord’s negligence.landlord’s negligence.


Certificate of OccupancyCertificate of Occupancy

Investigate whether the tenant’s anticipated use Investigate whether the tenant’s anticipated use for the premises is permitted by law by for the premises is permitted by law by searching the relevant government website. For searching the relevant government website. For example, in New York City, the legal use for example, in New York City, the legal use for the premises and the certificate of occupancy the premises and the certificate of occupancy can be viewed by searching the Department of can be viewed by searching the Department of Buildings website.Buildings website.[i][i]

[i][i] http://www.nyc.gov/html/dob/html/bis/bis.shtml http://www.nyc.gov/html/dob/html/bis/bis.shtml


Requiring the Landlord to Requiring the Landlord to Mitigate DamagesMitigate Damages

Since the Court of Appeals decided the seminal case of Since the Court of Appeals decided the seminal case of Holy Holy Properties v. Kenneth ColeProperties v. Kenneth Cole in 1995, landlords have not been in 1995, landlords have not been required to mitigate damages when a commercial tenant required to mitigate damages when a commercial tenant defaults on its lease and surrenders or is removed from the defaults on its lease and surrenders or is removed from the premises. premises.

As the tenant of record remains liable for all rents due during As the tenant of record remains liable for all rents due during the remainder of its term of the lease, a landlord has no the remainder of its term of the lease, a landlord has no incentive to even attempt to re-rent or alleviate a defaulting incentive to even attempt to re-rent or alleviate a defaulting tenant of its duty to pay rent. Landlords are not obligated to tenant of its duty to pay rent. Landlords are not obligated to mitigate prospective losses in the event of default on rent mitigate prospective losses in the event of default on rent payments. This has produced exceedingly harsh results.payments. This has produced exceedingly harsh results.


Requiring the Landlord to Requiring the Landlord to Mitigate Damages ContinuedMitigate Damages Continued

Hence, every lease should contain a clause which provides that, upon a Hence, every lease should contain a clause which provides that, upon a default in the lease that results in the surrender or eviction from the default in the lease that results in the surrender or eviction from the premises, the landlord agrees to mitigate its losses and to use reasonable premises, the landlord agrees to mitigate its losses and to use reasonable efforts to re-lease the demised premises. efforts to re-lease the demised premises.

If it can be negotiated, such a clause should include a requirement by the If it can be negotiated, such a clause should include a requirement by the landlord to advertise weekly and to employ a qualified real estate broker to landlord to advertise weekly and to employ a qualified real estate broker to find a new tenant to lease the premises. This clause should also include a find a new tenant to lease the premises. This clause should also include a duty by the landlord to attempt to rent the premises for at least the same duty by the landlord to attempt to rent the premises for at least the same rent to reduce any remaining tenant liability. rent to reduce any remaining tenant liability.

When one contemplates the potential amounts that could be owed without a When one contemplates the potential amounts that could be owed without a mitigation of damages clause, it is clear that negotiating such a simple mitigation of damages clause, it is clear that negotiating such a simple clause may provide a tenant a life preserver in an ocean of financial clause may provide a tenant a life preserver in an ocean of financial devastation.devastation.


The Option To RenewThe Option To Renew The Option to Renew has been in practice for hundreds of years. The Option to Renew has been in practice for hundreds of years.

The option permits a tenant to sign on for another five or ten years at a negotiated The option permits a tenant to sign on for another five or ten years at a negotiated rent. rent.

The renewal rent negotiated at the time of the initial lease is often only three to five The renewal rent negotiated at the time of the initial lease is often only three to five percent above the rent for the last year of the original lease period. Since the tenant percent above the rent for the last year of the original lease period. Since the tenant is not required to exercise the option, it can vacate the space without any liability is not required to exercise the option, it can vacate the space without any liability after the initial lease term. after the initial lease term.

After investing heavily to turn raw space into an office or store, a tenant will be After investing heavily to turn raw space into an office or store, a tenant will be more comfortable signing a lease with a shorter term with the knowledge that, at its more comfortable signing a lease with a shorter term with the knowledge that, at its option it can remain for one or more renewal periods. In fact, a shorter term with option it can remain for one or more renewal periods. In fact, a shorter term with option periods may be beneficial for a smaller company without the ability to option periods may be beneficial for a smaller company without the ability to forecast financial success. Finally, if the market calls for a lower rent than the forecast financial success. Finally, if the market calls for a lower rent than the renewal option specifies, negotiation may result in a decreased rent when it is time renewal option specifies, negotiation may result in a decreased rent when it is time to renew. to renew.


The Option to Renew ContinuedThe Option to Renew Continued The option to renew is beneficial to the landlord as a result The option to renew is beneficial to the landlord as a result

of the incentives supplied and its importance as a negotiating of the incentives supplied and its importance as a negotiating tool. tool.

By making the option contingent on the tenant’s good By making the option contingent on the tenant’s good standing with its lease obligations during the current term, standing with its lease obligations during the current term, the tenant shall have an important incentive to be on its best the tenant shall have an important incentive to be on its best behavior, and to comply with all its lease obligations to behavior, and to comply with all its lease obligations to avoid losing the right to renew. avoid losing the right to renew.

Granting the option can also give the landlord an important Granting the option can also give the landlord an important negotiating tool that may overcome any stalemate that has negotiating tool that may overcome any stalemate that has impeded the lease negotiations.impeded the lease negotiations.

Adam Leitman Bailey, P.CAdam Leitman Bailey, P.C

Right of Expansion ClauseRight of Expansion Clause An expansion clause is the right or option to lease a specific additional space in An expansion clause is the right or option to lease a specific additional space in

the demised premises for a defined term in the future. Such an option becomes the demised premises for a defined term in the future. Such an option becomes significant when a company has outgrown its space and wishes to avoid having to significant when a company has outgrown its space and wishes to avoid having to move to a new location and save the cost and inconvenient time delays that move to a new location and save the cost and inconvenient time delays that relocation necessitates. Financially, it saves the tenant from being forced to lease relocation necessitates. Financially, it saves the tenant from being forced to lease additional space if its financial situation does not dictate growth when the option additional space if its financial situation does not dictate growth when the option becomes available.becomes available.

The expansion clause allows a tenant the flexibility of either The expansion clause allows a tenant the flexibility of either (a)(a) taking an entirely new and larger space in the building without any financial taking an entirely new and larger space in the building without any financial

consequences for vacating its present space or permits the tenant to simply expand consequences for vacating its present space or permits the tenant to simply expand its tenancy by taking additional floor space, its tenancy by taking additional floor space,

(b)(b) The expansion option also benefits the landlord by allowing it the flexibility to The expansion option also benefits the landlord by allowing it the flexibility to deliver different floors or rental space to the tenant at different times. deliver different floors or rental space to the tenant at different times.

(c)(c) The expansion clause also requires communication between the landlord and The expansion clause also requires communication between the landlord and tenant at certain fixed times which might not otherwise occur without a lease tenant at certain fixed times which might not otherwise occur without a lease provision dictating such contact.provision dictating such contact.


Right of Expansion Clause Right of Expansion Clause ContinuedContinued

As the landlord knows when existing leases expire, it will As the landlord knows when existing leases expire, it will be able to determine vacancy dates before the execution of be able to determine vacancy dates before the execution of the initial lease. As such, the negotiated expansion clause the initial lease. As such, the negotiated expansion clause should address different possibilities for potential should address different possibilities for potential expansion. The expansion clause should be expressly expansion. The expansion clause should be expressly negotiated to include \negotiated to include \

(a)(a) a detailed description of specific potential expansion a detailed description of specific potential expansion spaces, spaces,

(b)(b) the yearly rent due or an agreement to use the fair market the yearly rent due or an agreement to use the fair market rent, and rent, and

(c)(c) any increases in taxes and/or operating expenses. In any increases in taxes and/or operating expenses. In addition, a provision requiring the landlord to use addition, a provision requiring the landlord to use reasonable efforts to recover possession from a holdover reasonable efforts to recover possession from a holdover tenant in the chosen expansion space should be included. tenant in the chosen expansion space should be included.


Right of First RefusalRight of First Refusal An ROFR is enforceable when the price of the property, the time the An ROFR is enforceable when the price of the property, the time the

holder has to accept the ROFR and the ROFR’s purpose are deemed holder has to accept the ROFR and the ROFR’s purpose are deemed reasonable. ROFR’s specifying a fair market or market-produced sales reasonable. ROFR’s specifying a fair market or market-produced sales price have been upheld, as well as ROFRs that have designated a 90 day price have been upheld, as well as ROFRs that have designated a 90 day period for exercising or accepting the ROFR. period for exercising or accepting the ROFR.

The practitioner drafting an ROFR should require that the election to The practitioner drafting an ROFR should require that the election to exercise the ROFR he completed exercise the ROFR he completed

1.1. within a narrow time frame, within a narrow time frame, 2.2. that the election be written, and that the election be written, and 3.3. that it be delivered by certified or other mail tracking device.that it be delivered by certified or other mail tracking device.4.4. A closing date scheduled a certain amount of days from delivery of the A closing date scheduled a certain amount of days from delivery of the

executed contract should be required, but only against the ROFR holder.executed contract should be required, but only against the ROFR holder.5.5. An ROFR provision may not violate either a state’s Rule Against An ROFR provision may not violate either a state’s Rule Against

Perpetuities or the common law rule against unreasonable restraints on Perpetuities or the common law rule against unreasonable restraints on alienation. The invocation of those rules in the appropriate case will render alienation. The invocation of those rules in the appropriate case will render an ROFR null and void and unenforceable. an ROFR null and void and unenforceable.


Right of First Refusal ContinuedRight of First Refusal Continued6. A signed contract of sale with terms that are identical to those contained in 6. A signed contract of sale with terms that are identical to those contained in

any offer received from a third party should be due along with a 10 percent any offer received from a third party should be due along with a 10 percent down payment within a short time (e.g. 10 day business days from the date down payment within a short time (e.g. 10 day business days from the date of delivery). of delivery).

7. The ROFR provision should specifically state that the purchase shall not be 7. The ROFR provision should specifically state that the purchase shall not be contingent on a mortgage or any financing contingency.contingent on a mortgage or any financing contingency.

8. The ROFR is already a deterrent to potential buyers who see the ROFR as an 8. The ROFR is already a deterrent to potential buyers who see the ROFR as an impediment to closing a deal, so these tight, strict provisions should assist in impediment to closing a deal, so these tight, strict provisions should assist in selling the property without any major impediments. For verification selling the property without any major impediments. For verification purposes, the ROFR provision should also include a requirement that the purposes, the ROFR provision should also include a requirement that the Seller provide written proof of any offers including the interested party’s Seller provide written proof of any offers including the interested party’s name upon a timely written request. name upon a timely written request.

9. This should eliminate the frequent disputes that cause litigation where the 9. This should eliminate the frequent disputes that cause litigation where the ROFR holder believes that the Seller does not have an actual buyer and is ROFR holder believes that the Seller does not have an actual buyer and is using the ROFR to raise the sale price.using the ROFR to raise the sale price.


Signage and AlternationsSignage and Alternations A disproportionate amount of commercial leasing litigation derives from disputes A disproportionate amount of commercial leasing litigation derives from disputes

over signs and alterations. over signs and alterations. In an attempt to decrease the amount of litigation involving such items, attorneys In an attempt to decrease the amount of litigation involving such items, attorneys

should learn a tenant’s business needs and carefully adopt them to the lease. should learn a tenant’s business needs and carefully adopt them to the lease. Before the lease signing, negotiate the advance or pre-approval of any alteration Before the lease signing, negotiate the advance or pre-approval of any alteration

changes and signage requests as well as any foreseeable alteration changes during the changes and signage requests as well as any foreseeable alteration changes during the term of the lease. term of the lease.

Specific plans, measurements, drawings and pictures should be provided and Specific plans, measurements, drawings and pictures should be provided and attached to the lease agreement. attached to the lease agreement.

If possible, obtain the right to make non-structural alterations without the landlord’s If possible, obtain the right to make non-structural alterations without the landlord’s approval, including any alterations that are insignificant or do not require building approval, including any alterations that are insignificant or do not require building permits. permits.

Draft a representation by the landlord to remove any existing violations against the Draft a representation by the landlord to remove any existing violations against the premises, so that any permit applications needed to perform work will not be premises, so that any permit applications needed to perform work will not be rejected. For all other alterations necessitating permission, ensure that such rejected. For all other alterations necessitating permission, ensure that such authorization will not be unreasonably withheld. authorization will not be unreasonably withheld.


Square FootageSquare Footage

Many times the landlords’ calculations of Many times the landlords’ calculations of square footage is not accurate.square footage is not accurate.

Hire your own architect or expert to provide Hire your own architect or expert to provide a correct measure of square feet of space.a correct measure of square feet of space.

Adam Leitman Bailey, P.CAdam Leitman Bailey, P.C

Property Ownership and Tax Property Ownership and Tax InformationInformation

When receiving a draft of a landlord’s lease, When receiving a draft of a landlord’s lease, the ownership interests of the entity or person the ownership interests of the entity or person listed in the agreement should be investigated. listed in the agreement should be investigated. Property ownership and tax information should Property ownership and tax information should be checked by visiting the proper website.be checked by visiting the proper website.[i][i]

[i][i] In NYC, tax information can be found at The Department of Finance In NYC, tax information can be found at The Department of Finance website: http://www.nyc.gov/html/dof/html/home/home.shtml. To check website: http://www.nyc.gov/html/dof/html/home/home.shtml. To check for property ownership, the ACRIS system, can be found at http://a836-for property ownership, the ACRIS system, can be found at http://a836-acris.nyc.gov/Scripts/Coverpage.dll/index. acris.nyc.gov/Scripts/Coverpage.dll/index.


Lawful Use and Cancellation Lawful Use and Cancellation In New York City, any premises constructed after 1938 or where In New York City, any premises constructed after 1938 or where

significant renovations resulted requires a certificate of occupancy.significant renovations resulted requires a certificate of occupancy.[i][i]

The certificate of occupancy will report the legal uses for the The certificate of occupancy will report the legal uses for the premises, and, if a tenant’s proposed business is not listed, a premises, and, if a tenant’s proposed business is not listed, a competent expediter or architect should be able to determine competent expediter or architect should be able to determine whether legalization is possible. To legalize a new use for the whether legalization is possible. To legalize a new use for the premises, the architect or expediter must have all building violations premises, the architect or expediter must have all building violations corrected, and then proceed with an application for an amendment to corrected, and then proceed with an application for an amendment to the certificate of occupancy approving the new use. the certificate of occupancy approving the new use.

[i] N.Y. Admin. Code § 27-217 [i] N.Y. Admin. Code § 27-217


Lawful Use and Cancellation Lawful Use and Cancellation ContinuedContinued

If any doubt lingers, a provision should be negotiated giving the tenant the ability to If any doubt lingers, a provision should be negotiated giving the tenant the ability to cancel the lease upon a determination that the planned use of the premises cannot be cancel the lease upon a determination that the planned use of the premises cannot be legalized or that it cannot be made so within a reasonable time after submitting a legalized or that it cannot be made so within a reasonable time after submitting a proper application. During this waiting period, the lease should require that no rent proper application. During this waiting period, the lease should require that no rent become due. become due.

To facilitate the process, a provision requiring the landlord to complete any To facilitate the process, a provision requiring the landlord to complete any necessary forms to legalize the use or proposed alterations should be drafted. necessary forms to legalize the use or proposed alterations should be drafted.

If the lease is cancelled the landlord should be required to return all monies If the lease is cancelled the landlord should be required to return all monies forwarded to the landlord as well as to reimburse any expenses incurred by the forwarded to the landlord as well as to reimburse any expenses incurred by the tenant in attempting to legalize the premises. tenant in attempting to legalize the premises.

A tenant should also retain the ability to cancel the lease if a tenant is unable to take A tenant should also retain the ability to cancel the lease if a tenant is unable to take possession on the move-in date or soon thereafter. possession on the move-in date or soon thereafter.

A representation should be added whereby the landlord agrees to make a good faith A representation should be added whereby the landlord agrees to make a good faith effort to complete, and legalize the premises, as well as to evict a holdover tenant. effort to complete, and legalize the premises, as well as to evict a holdover tenant.

In an alternative to canceling the lease, the tenant should be granted a rent In an alternative to canceling the lease, the tenant should be granted a rent abatement for each day that the landlord fails to deliver possession. abatement for each day that the landlord fails to deliver possession.

Upon the delayed commencement of the lease, the expiration dates of the lease Upon the delayed commencement of the lease, the expiration dates of the lease should be extended, and the commencement date should be contingent on the should be extended, and the commencement date should be contingent on the issuance of the various approvals and permits necessary to complete construction. issuance of the various approvals and permits necessary to complete construction.


Negotiating a Better Commercial Negotiating a Better Commercial Lease for LandlordsLease for Landlords

Attorneys are making too much money litigating disputes between commercial landlords and Attorneys are making too much money litigating disputes between commercial landlords and tenants. Even the most frequently used “standard form” leases permit tenants to stall and tenants. Even the most frequently used “standard form” leases permit tenants to stall and strangle property owners. And these same leases leave tenants without proper recourse when strangle property owners. And these same leases leave tenants without proper recourse when property owners fail to follow written commitments. Instead of blaming a judge, a landlord, property owners fail to follow written commitments. Instead of blaming a judge, a landlord, or a tenant, it is time that practitioners recognize, to paraphrase Shakespeare, that the fault is or a tenant, it is time that practitioners recognize, to paraphrase Shakespeare, that the fault is not in the judicial system but in our leases. As the enforcement mechanism in a commercial not in the judicial system but in our leases. As the enforcement mechanism in a commercial lease, default clauses must be revised and developed to better meet the needs of landlords lease, default clauses must be revised and developed to better meet the needs of landlords and tenants in the existing real estate market.and tenants in the existing real estate market.

By taking advantage of equitable judicial relief, tenants have been able to avoid having to By taking advantage of equitable judicial relief, tenants have been able to avoid having to follow their lease terms, and poorly drafted provisions have permitted tenants to avoid timely follow their lease terms, and poorly drafted provisions have permitted tenants to avoid timely paying their rent and other monies owed under the lease. By drafting provisions which paying their rent and other monies owed under the lease. By drafting provisions which provide:provide:

(1)(1) that a lease shall be terminated for the chronic nonpayment of rent, that a lease shall be terminated for the chronic nonpayment of rent, (2)(2) that all rents during the lease term are accelerated upon a default in rent payments, that all rents during the lease term are accelerated upon a default in rent payments, (3)(3) that remove the availability of a cure period, andthat remove the availability of a cure period, and(4)(4) that make all monies owed under the lease as additional rent, many of these problems may be that make all monies owed under the lease as additional rent, many of these problems may be

eliminated. eliminated.


The Case LawThe Case Law

New York courts have produced very favorable decisions New York courts have produced very favorable decisions permitting parties to freely negotiate lease terms without the permitting parties to freely negotiate lease terms without the imposition of an intrusive judiciary. Even lease provisions imposition of an intrusive judiciary. Even lease provisions producing harsh results for one side have been enforced producing harsh results for one side have been enforced consistently by the highest courts in New York “no matter consistently by the highest courts in New York “no matter how unwise it might appear to a third party.”how unwise it might appear to a third party.”


Rent Acceleration Rent Acceleration When used properly, a rent acceleration clause provides another formidable mechanism to When used properly, a rent acceleration clause provides another formidable mechanism to

ensure the timely payment of rent. Upon a default in the payment of rent, a properly drafted ensure the timely payment of rent. Upon a default in the payment of rent, a properly drafted acceleration clause permits a landlord to collect all of the monies due under the lease without acceleration clause permits a landlord to collect all of the monies due under the lease without having to wait for the lease to expire.having to wait for the lease to expire.

Although an unenforceable penalty and forfeiture in some states and not permitted during the Although an unenforceable penalty and forfeiture in some states and not permitted during the first half of the twentieth century in New York, the Court of Appeals reversed course and first half of the twentieth century in New York, the Court of Appeals reversed course and recognized its validity for defaults in the payment of rent in recognized its validity for defaults in the payment of rent in Fifty States Management Corp. v. Fifty States Management Corp. v. Pioneer Auto Parks.Pioneer Auto Parks. In enforcing such a provision, the Court noted that “absent some In enforcing such a provision, the Court noted that “absent some evidence of fraud, exploitive overreaching or unconscionable conduct on the part of the evidence of fraud, exploitive overreaching or unconscionable conduct on the part of the landlord” equitable intervention was not justified. However, the courts have limited its landlord” equitable intervention was not justified. However, the courts have limited its enforceability to violations involving the nonpayment of rent.enforceability to violations involving the nonpayment of rent.

It should be noted that if a tenant submits payment for the full term of the lease at this time, It should be noted that if a tenant submits payment for the full term of the lease at this time, the tenant may remain in possession. As noted briefly above, in order to effect such a default, the tenant may remain in possession. As noted briefly above, in order to effect such a default, all of the details and requirements of the lease must be strictly followed.all of the details and requirements of the lease must be strictly followed.

As with chronic nonpayment clauses, the Appellate Division, Second Department, recognized As with chronic nonpayment clauses, the Appellate Division, Second Department, recognized in in GAB Management v. John BlumbergGAB Management v. John Blumberg, that one default in the payment of rent could , that one default in the payment of rent could effectuate an acceleration clause.effectuate an acceleration clause.


Omission of Notice to CureOmission of Notice to Cure

Courts have also approved the omission of the standard “notice Courts have also approved the omission of the standard “notice to cure” normally placed in default clauses in commercial to cure” normally placed in default clauses in commercial leases. Such an omission takes away a tenant’s ability to leases. Such an omission takes away a tenant’s ability to prevent a property owner from terminating a lease if the lease prevent a property owner from terminating a lease if the lease terms are violated. Of course, a property owner that chooses to terms are violated. Of course, a property owner that chooses to exercise such an option may still have to persuade a court that a exercise such an option may still have to persuade a court that a tenant’s conduct or lack of conduct existed and violated the tenant’s conduct or lack of conduct existed and violated the lease. However, the omission of a cure or correction period in a lease. However, the omission of a cure or correction period in a lease provides a property owner with a shield against one of the lease provides a property owner with a shield against one of the most paralyzing tenant weapons ever created by a court---the most paralyzing tenant weapons ever created by a court---the Yellowstone Injunction. Yellowstone Injunction.


Additional RentAdditional Rent Another small addition to a default clause that greatly Another small addition to a default clause that greatly

influences the ability for a property owner to collect any monies influences the ability for a property owner to collect any monies owed under the lease occurs when the lease refers to amounts owed under the lease occurs when the lease refers to amounts due as “additional rent.” Ergo, monies owed under lease due as “additional rent.” Ergo, monies owed under lease clauses involving taxes, attorney fees, security deposits, letters clauses involving taxes, attorney fees, security deposits, letters of credit, and insurance should be deemed additional rent and of credit, and insurance should be deemed additional rent and drafted into the commercial lease. drafted into the commercial lease.

For example, taking the security deposit to satisfy arrears may For example, taking the security deposit to satisfy arrears may result in the landlord’s loss of the security money through the result in the landlord’s loss of the security money through the end of the term unless the lease specifically provides that a end of the term unless the lease specifically provides that a failure to replenish depleted security within a specified time failure to replenish depleted security within a specified time shall be deemed a failure to pay additional rent under the lease.shall be deemed a failure to pay additional rent under the lease.


Tenant Self HelpTenant Self Help One of the most useful tenant-friendly clauses is the tenant’s self-help One of the most useful tenant-friendly clauses is the tenant’s self-help

provision. provision. Such a provision permits a tenant to complete any repairs that the landlord Such a provision permits a tenant to complete any repairs that the landlord

neglects to complete within an allotted time period after notification from neglects to complete within an allotted time period after notification from tenant. tenant.

Under this clause, a tenant shall seek reimbursement by obtaining a rent Under this clause, a tenant shall seek reimbursement by obtaining a rent credit for the cost of the repair or by obtaining reimbursement from the credit for the cost of the repair or by obtaining reimbursement from the landlord. landlord.

Besides vitiating the tenant’s dilemma of whether it can withhold rent Besides vitiating the tenant’s dilemma of whether it can withhold rent until the repairs are done, it will provide a mechanism that should assist in until the repairs are done, it will provide a mechanism that should assist in keeping the premises free of necessary repairs. keeping the premises free of necessary repairs.

The self-help clause will also resolve the “independent covenant” The self-help clause will also resolve the “independent covenant” dilemma, where any rental amounts due to the landlord are deemed dilemma, where any rental amounts due to the landlord are deemed independent of the landlord’s obligation to do repairs. independent of the landlord’s obligation to do repairs.

Any lease provision specifying that each provision in the lease is Any lease provision specifying that each provision in the lease is independent of every other provision should be modified to include the independent of every other provision should be modified to include the tenant self help provisiontenant self help provision..


Licensing AgreementLicensing Agreement

Whether an agreement is held to be a “license” and not a Whether an agreement is held to be a “license” and not a lease will depend on the presence or absence in the lease will depend on the presence or absence in the agreement of the three essential characteristics of a real agreement of the three essential characteristics of a real estate license: estate license:

1.1. a clause allowing the licensor to revoke “at will;”a clause allowing the licensor to revoke “at will;”

2.2. the retention by the licensor of absolute control over the the retention by the licensor of absolute control over the premises; and premises; and

3.3. the licensor’s supplying to the licensee all of the essential the licensor’s supplying to the licensee all of the essential services required for the licensee’s permitted use of the services required for the licensee’s permitted use of the premises.premises.


Always More Provisions to NegotiateAlways More Provisions to Negotiate

Dozens of other provisions exist that would be Dozens of other provisions exist that would be helpful to the tenant; however this lecture has helpful to the tenant; however this lecture has

recommended a few of not only the most recommended a few of not only the most essential, but those that have a decent chance essential, but those that have a decent chance

of being negotiated into the lease.of being negotiated into the lease.
