Between issues with the substantive provisions of a lease and errors made in executing the final version, a lot of things can go wrong—even in a well-drafted and negotiated lease. Here are some common problems to avoid.
Substantive issues often arise when the parties use a form
lease that either has not been updated recently or does
not fit the circumstances that apply to the specific tenant
or leased premises. Even if you are using a lease you’ve
used before, always carefully read the lease before sending
it to the other party and make sure the terms fit the
LANDLORD OR TENANT OBLIGATIONS?
- Repairs: Forgetting to include detailed provisions about
who is responsible for repairing and replacing various
parts of the building can lead to disputes. Generally
in multitenant buildings, landlords are responsible for
repairs to important structural elements, such as the
roof and slab, and the tenant is responsible for repairs
inside the leased premises. Frequently overlooked items
include parking lot repair and replacement and the
replacement of storefront glass. In single-tenant leases,
the lease should state whether or not the tenant is
responsible for all repairs, including structural repairs.
- Maintenance: An oft-neglected maintenance obligation
is snow removal. The lease should specifically
state whether the landlord or the tenant is responsible
for removing snow from sidewalks and parking areas.
- Cabling Removal: More and more often, tenants want
to be able to install their own cabling inside the walls and ceiling of the leased premises, which may not be
useful to the next tenant and may require removal. If
the lease does not require the tenant to remove the
cabling at its expense upon termination or expiration of
the lease, the tenant will likely not be required to do so,
adding an extra expense in reletting the premises. If the
tenant will be installing cabling, the lease should specify
if the tenant will be responsible for removing the cabling
and repairing any damage caused by the removal.
While the attorneys for the landlord and the tenant are
useful for negotiating the language of the lease provisions
regarding insurance coverage, the provisions should ultimately
be reviewed by the landlord’s insurance broker to
make sure that coverage amounts are correct and that the
provisions make sense with the state-specific insurance
scheme. For example, insurance company licensing rules
and requirements vary by state, and some states may have
specific licensing requirements that should be addressed
in the lease. Make sure that your insurance broker reviews
the final insurance provision.
LEASE EXECUTION ISSUES
After negotiating, parties are often in a hurry to get a lease
signed, which can lead to mistakes in its execution. Always
give the lease one final, complete review before signing it
to avoid issues like the ones below.
- Wrong Lease Commencement Date: Imagine a scenario
in which all parties had anticipated the lease
would commence on a specific date, but the negotiations
took longer than expected. The negotiations focused
on other terms of the lease, and no one remembered to
update the lease commencement date. This is especially
problematic if other key dates, such as the date by which
tenant improvements must be completed, are based on
the lease commencement date. Always check all dates in
the final document.
- Forgotten Exhibits: Leases frequently include placeholders
for exhibits to be attached in the execution version,
and parties frequently forget to attach important
exhibits, such as a depiction of the leased space and lists
of exclusive or prohibited uses. The parties should carefully
review the final lease to make sure that all exhibits
are attached and that the attached exhibits are the final
versions agreed to by the parties.
Taking extra care to watch for common leasing issues
can save all parties from the extra headache of leasing
ABOUT THE AUTHOR:As an associate with Ballard Spahr,
Sonja “Sunny” Beddow advises clients on a wide range of real
estate matters and transactions. Her experience includes property
purchases and sales; title and survey review; lease negotiation and
drafting; and mixed-use development.
This article was originally published in the March/April 2020 issue of BOMA Magazine.