The landlord typically

Document Sample
The landlord typically Powered By Docstoc
					As appeared in…

                                                                                                                                MARCH 5–MARCH 18, 2008

                           Tenant’s perspective on 10
                          commercial lease provisions
          he landlord typically                              the insurance       n Default. Although a ten-           how quickly the tenant has to
          prepares the first draft                           company          ant does not enter into a lease         respond.
          of a commercial lease.                             may use          anticipating that it will default, it      n Lenders. Many landlords
As the tenant has different con-                             its rights of    needs to consider the possibility       have lenders holding deeds of
cerns than the landlord, the list                            subrogation      that certain events could trigger       trust or mortgages encumber-
below provides a short summa-                                and sue the      a default that could then allow         ing the property. The lease may
ry of 10 of the more important                               tenant if the    the landlord to terminate the           state that the lender is to have
items from the tenant’s perspec-                             tenant was       lease or pursue other remedies.         rights in the property superior
tive when negotiating the lease.                             somehow          The tenant will want notice from        to the tenant’s lease rights. If
   n Operating expenses.                                     negligent or     the landlord and a reasonable           the landlord defaults under
Many commercial leases are “tri-                             otherwise        period of time in which to cure         the loan with the lender, the
ple net” in nature where the ten-            Evan L.         responsible.     defaults before the landlord can        tenant could be at risk of hav-
ant pays the operating expenses              Randall         Therefore, the   undertake its remedies.                 ing its lease terminated in the
associated with the property and        Associate attorney, tenant should                                             lender’s foreclosure unless the
                                        Holland & Hart LLP,                      n Eminent domain and
the base rent. In a multitenant          Colorado Springs make sure           casualty loss. A lease usually          lender provides the tenant with
building, these expenses could                               that the lease   specifies what happens when             a nondisturbance agreement. In
include the tenant’s pro-rata por-                           provides a       a casualty loss damages the             such an agreement, the lender
tion of taxes, insurance and other     waiver of this right of subroga-                                               agrees not to terminate the lease
                                                                              premises or a governmental
operating costs for the building.      tion, which prevents the land-                                                 in case of foreclosure but instead
                                                                              entity uses the power of eminent
The tenant should be aware of          lord’s insurance company from                                                  will allow the tenant to remain
                                                                              domain to take all or part of the
the types of expenses in this area     seeking to recoup this loss from                                               if the tenant treats the lender as
                                       the tenant.                            property containing the prem-
and how the landlord calculates                                                                                       the landlord and complies with
them. The tenant should watch             n Scope of landlord                 ises. These provisions may allow        the lease. In the lease, the tenant
out for big-ticket items, such as      responsibility and tenant              the landlord to terminate the           could require that the landlord
capital costs and other items that     indemnities. A landlord usu-           lease. The tenant should evalu-         obtain a nondisturbance agree-
should be the landlord’s respon-       ally disclaims any responsibility      ate if the landlord should have         ment from its existing lender
sibility.                              for losses or damages to the           broad termination rights where          and agree that the lease will only
   n Assignment and sublet-            tenant and requires that the           a loss or condemnation does not         be subordinate to future loans
ting. Most leases require the ten-     tenant indemnify the landlord          materially affect the tenant’s use      if the tenant receives a nondis-
ant to obtain the landlord’s con-      for certain matters. Although          of the premises and if the tenant       turbance agreement from the
sent if the tenant wants to assign     many landlords are reluctant to        should have any similar termi-          lenders.
the lease or sublease the premis-      change these provisions, the ten-      nation rights if it does.                  n Letters of intent. Letters
es. As it may take time and effort     ant should be aware of the scope          n Estoppels. A landlord’s            of intent are not part of the
to obtain the landlord’s consent       and may want to avoid provid-          lender or potential purchaser of        lease and may not be binding.
and the landlord might deny            ing any indemnities to the land-       the building may want to know           It is common, however, that the
the consent, the tenant should         lord where the landlord may be         the status of the tenant’s lease to     landlord and tenant sign a let-
understand what events require         fully or partially responsible for     determine items such as the term        ter of intent before preparing a
consent. The tenant may want           the damages or losses created.         of the lease, the amount of rent        written lease indicating certain
the landlord not to unreasonably          n Use. The tenant should            and if the landlord is in default.      key provisions the parties would
withhold, condition, or delay the      make sure that any lease restric-      The landlord may request that           like addressed in the lease. The
consent or provide exceptions,         tion on the tenant’s use does          the tenant sign an estoppel cer-        tenant should review the letter of
such as for transfers to affiliates.   not prevent what the tenant            tificate to address these factual       intent as it negotiates the lease to
   n Waiver of subrogation.            contemplates it will or might be       items about the lease, and the          make sure that the lease does not
The landlord typically obtains         doing. A lease with a narrow use       lease may require the tenant to         omit important terms.
property insurance on the build-       provision could hamper reason-         do so. As the signed estoppel              As a lease provides the rules
ing, but the tenant may pay            able changes or expansions of          will legally bind the tenant to         for the long-term relationship
for such insurance as a part of        the tenant’s initial use and also      these factual statements, the ten-      between the landlord and
the operating expenses. If the         make the premises less desirable       ant should consider in the lease        tenant, the tenant should care-
landlord’s insurance company           in case the tenant needs to assign     what types of estoppel ques-            fully review and negotiate its
pays for a loss to the building,       the lease or sublease the space.       tions the landlord can ask and          provisions.s