The Commercial Lease

The Commercial Lease is a hodge-podge of old common law real property laws and contemporary attempts to turn it into a service contract. Failures by both the landlord and tenant to make those diverse bodies of law dovetail perfectly frequently result in conflict and huge expenses.

Modern case law is basically a running critique by the courts on whether the landlords' or the tenants' real estate professionals did the best job of clearly stating their position. Unclear agreements often lead to litigation where there is no big prize. After all, the best either party can do after spending tens of thousands of dollars is hope that they end up where they thought they were on the day they signed the lease.

The Problem

1. The Common Law.The common law with all of its variations and nuances is the "default lease". In other words, once you have identified the parties, the property, the rent and term, all other issues will be resolved by the common law unless otherwise amended or modified by the written lease. Many parties are surprised to learn that the final leasing documnets may not control all parts of their transaction. The parties must first understand what the common law provides to be able to determine whether their lease document reflects their agreements.

2. The "standard form" lease. There is no standard form commercial lease! If you gather up a handful of leases from the most prominent developers and landlords in the country you will be amazed at how different they are. Some may be less than 20 pages while many will exceed 40 or 50 pages or more. While most will address some fairly standard topics, you will find that they are treated differently. This literally makes every form lease a moving target and you rely on the work of others at your peril.

3. The lack of any system to analyze leasing documents. The commercial lease is made up of a series of individual and very diverse topics such as insurance, construction, use restriction, relationships with third parties, rent escalations and pass-throughs all of which bring their own legal issues and all of which must be handled in a way that is consistent with all of the other clauses. Changes in one section of a lease usually require conforming changes in other parts. When not approached systematically, they are handled by memory, which for most is imperfect.

A Solution

The first and certainly one of the most critical steps is to make every effort to ensure that the final form of your lease overrides, modifies or restates the applicable provision at common law necessary for your transaction. A fertile area for conflict exists where a specific provision does not accurately replace or modify the common law, which may be unacceptable to one or both parties. A failure to restate or amend that law can result in a court looking back to the common law as the default lease to supply the answer. Since many of the answers are grounded in law that is over 200 years old, it is not surprising that that body of law does not adequately address contemporary problems. An article is available for printing which addresses this inherent problem in much more detail. To access the article, please click here to download it in PDF format.

The questions raised or which should be raised in a review of a contemporary commercial lease are far too numerous to trust to memory or experience. It is strongly recommended that real estate professionals develop their own set of analysis tools to be able to determine whether the common law has been replaced adequately by the contemporary lease and whether the newer services portion of the contractual agreement has been properly tied in to what is basically just a common law conveyance. It is typical in reviewing lengthy agreements to respond to what is included in the agreement. It is often difficult to realize that there may be entire topics, which have not been included and since they were not included at all, it makes it more difficult to raise questions about those provisions.

The Commercial Leasing Handbook + Checklists is described under Products and represents the most complete set of checklists on the market at this time. The Commercial Lease II contains 769 pages and is available in e-book format. The scope of both books is extensive and you can review the topics included at the Index and Scope tab to get a better feel for the issues that are addressed. These tools can help each real estate professional develop their approach to analysis, writing and negotiations. In these times, there is no question but that attorneys and real estate brokers will make their reputations on how well they assist their clients in understanding and debunking the "standard form" commercial lease.
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