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MARCH 5–MARCH 18, 2008
Tenant’s perspective on 10
commercial lease provisions
T
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
