Commercial Leasing From the Landlord\’s Perspective
The terms of the lease will bind the parties for a considerable period
of time and it is important, therefore, to carefully draft the lease up
front. Also, often times, when the lease term is coming to an end and
the parties want to negotiate an extension of the lease term, landlords
are tempted to just amend the lease time and time again to extend the
term. Certainly that is the quickest method to keep the lease going,
but after a series of amendments, the underlying (original lease) may
be 10 years or older. It may well be time to engage counsel, reevaluate
the lease, and be sure it meets current-day standards and addresses
issues that simply were not thought of those 10 years ago.
Rent Stream. Naturally, an uninterrupted rent stream is the most
important item for a landlord to preserve in its lease, for its own
well-being and also to keep its lender happy. Landlords will want to be
sure that the tenant does not have offset or deduction rights. Also,
rent abatement provisions must be carefully and narrowly drawn. For
example, if there is a service interruption, the tenant should not be
entitled to an abatement of rent (suspension of rent payments) unless
the interruption actually serves to deny the tenant use of the premises
and continues for some period of time before the abatement is
applicable. Also, if the lease allows the tenant to renew the lease,
the rent terms for the renewal term should be clearly spelled out.
Security Deposit. Landlords should ask for two months worth of
rent as a security deposit. In rent structures which increase over the
term of the lease, the landlord should ask for the two months at the
highest rate under the lease. The lease should also provide that in the
event landlord has to use all or a portion of the security deposit to
cure a tenant default, that the tenant must immediately restore the
security deposit. Additionally, the lease should provide that at the
end of the lease term, the security deposit will be returned to the
tenant after the landlord has had a chance to inspect the premises to
be sure they are in order and to confirm that all monies due have, in
fact, been paid.
Insurance Obligations. Landlords want to be sure that the tenant is
obligated to carry adequate levels of liability insurance. Otherwise,
the tenant\’s obligation to protect the landlord against certain claims
becomes meaningless. It is not uncommon to require tenants to carry $2
or $3 million dollars in bodily injury insurance and $1 or $2 million
dollars in property damage. These levels certainly were not typical
years ago and landlords need to be certain that the insurance levels
are meaningful.
Assignment and Subletting. This is always a hot topic between the
landlord and tenant. The landlord will want to keep the tenant it
bargained for and the tenant will want the flexibility to assign
(transfer) the lease or sublet (allow a third party to use) the
premises. Landlords that agree to allow tenant the right of assignment
or subletting should not be tempted to merely say, as is the case in
many older leases, that consent to an assignment will not be
“unreasonably withheld.” Rather, the lease should provide standards by
which clearly the landlord is not being unreasonable. For example, it
shall not be considered unreasonable for the landlord to deny an
assignment request if the new tenant is not credit worthy or does not
have experience in the business operated from the premises.
Waiver of Jury Trial. Many older leases do not contain a waiver
of jury trial. If things “go wrong” and the landlord finds the need to
take the tenant to court, the landlord wants a quick determination of
the issues. Jury trials will delay proceedings and, most often, make
the proceeding more costly to the landlord.
