Focus on Commercial Real Estate: Navigating the Complex World of Business Property Leasing-The Tenant's Side

Article excerpt

NO CONSULTANT, REAL ESTATE BROKER OR LAWYER likes a client to accuse him or her of over-lawyering a lease. This is particularly true when one is acting on behalf of a prospective tenant in a lease that has been prepared by the landlord. A lease is a very complex document; a fact that clients who do not deal with leases on a regular basis fail to recognize. The lease is only a "simple" document for those who are not knowledgeable.

The leasing of real estate for business use has been a part of the business scene since time immemorial. Originally, the courts viewed a lease as a sale of the real estate for the term of the lease. That concept resulted in the tenant taking the property with all its defects and inadequacies, and the lessor having no responsibility for the condition, repair or maintenance of the property during the lease term. The tenant also was required to continue paying rent under any circumstance. Even if the building burned down, the tenant was obligated to pay the rent.

When the subject of the lease is residential property, all states have changed that rule by court decision or legislative action. But when it's a business lease--whether the property is commercial, office or industrial property--the rule has been changing very slowly. In fact, states' rules vary widely when it comes to identifying parties' obligations and rights when nonresidential property leases fail to address key issues.

However, in one respect, all U.S. courts are in agreement: To a substantial extent, parties can change the rules by signing a written lease that contains different rules than the law would otherwise impose. In effect, the law permits the parties to make up their own rules if they wish to, so long as they do not violate applicable law or public policy.

Leases concerning business property, whether typed or printed, are, for the most part, heavily biased in favor of the lessor. The tenant and the tenant's representative must examine this one-sided document closely to determine whether it contains the business points the parties agreed to and ensure nothing has been added or deleted since they reached the informal agreement. However, the lease form will contain a great number of provisions that no one ever spoke about and the tenant didn't think about, and it likely will fail to mention concepts that the tenant has raised with the lessor's representative. So the negotiation process begins.

Because leases are extraordinarily difficult to read and understand (surpassed only by insurance policies) and contradictions almost always exist, the negotiation process rarely comes to a speedy conclusion. When the tenant gets the lease form from the lessor, it is a heavy, thick and forbidding document. The tenant usually doesn't have enough technical knowledge to understand all its implications and must decide whether to sign it as is, read and negotiate it without help or retain a knowledgeable and experienced representative to conduct a review.

Depending upon the degree of sophistication of the tenant and the tenant's representative, they may or may not deal with important issues in the lease--not the least of which is clauses the lessor did not put into the lease, but the tenant should insist upon being included in the lease.

ISSUE NO. 1: DRAFTING THE LEASE

The question of who will prepare the lease form is a very important one. The side that has drafting rights has the opportunity to make sure everything it wants is in the lease and slant the transaction to its favor. That favoritism--which can be expressed in writing or can occur by omitting critical terms, conditions or concepts--can be heavy-handed, medium or slight.

Typically, the lessor will draft the lease and present it to the tenant. An exception to his general rule is when the tenant is a Fortune 500 company. Then, the tenant presents the lease form to the lessor. In that event, the lessor will have all the problems with the lease form that the tenant normally experiences. …