- Differences with residential vs. commercial real estate leases
- Residential leases more consumer protected.
- Commercial leases are negotiable
- More business to business perspective
- This session is not all inclusive of all clauses important to a tenant but a sample
B. SECURITY/DAMAGE DEPOSIT
- Amount is negotiable
- Can be based on tenant financial strength
- Used delinquent base rent payments
- Used for delinquent reimbursables and real estate taxes
- Used for physical damage to the property
- Language may call for a replenishment
- No requirement to pay interest on the deposit
- Understand the conditions for returned deposit at end of lease term.
- Is an inspection required in lease?
- Tenant can negotiate a “burn down” under certain conditions
- Tenant may negotiate a letter of credit
- Tenant may offer personal or corporate guarantees in lieu of cash deposit.
- Bankruptcy risk and security deposits.
C. FORCE MAJEURE
- Defines a “Major Force” or excuses for non-performance without penalties
- Examples: Acts of God, labor stoppage, material shortage, civil commotion, etc.
- May be found in Work Letter or Landlord’s Responsibilities.
- Landlord or tenant is excused from penalties from construction and repairs
- Tenant issues: Delay to move into space with holdover elsewhere, consequential damages to tenant
D. NON-DISTURBANCE and RECORDINGS
- Concern if the landlord falls into foreclosure, the lender’s recognition of a lease.
- Lender has right to evict a tenant.
- Also sale of a property with long term leases of 7+ years can be invalidated under certain conditions
- MGL 183, Ch. 4
- Recording of lease or Notice of Lease for tenant protection.
- SNDA agreement for tenant protection and recording of SNDA
- Discuss components of SNDA and need for lender’s signature.
E. DEFAULT AND CURE
- Differences of monetary and non-monetary default
- Types of notice to tenant on default events
- Grace period tenant protection
- Tenant may be subject to Late Rent Payment
- Tenant should review the form of notice
- Time to cure is negotiable. Examples?
- Other penalty examples (consequential damages) for default
- See Cummings Properties vs. National Communications Corp. on acceleration of rent
- Other clause examples impacting default proceedings.
- Clarifies the method to solve disputes
- Litigation: Bench or Jury trial?
- Alternative Dispute Resolution
- Negotiating the qualifications of any mediator or arbitrator
- American Arbitration Association, NAR mediation, state board mediators, Counselors of Real Estate ADR, etc.
G. LATE RENT PAYMENTS
- Landlord imposed penalty
- Tenant should be aware of definition of rent
- May include “additional rent”, “taxes”, “replenishment of security deposit”, etc.
- Negotiating time event before considered “late”
- What is the penalty amount? How is it determined?
- Other consequential damages to the tenant
- Negotiating for one-time waivers.
H. LANDLORD’S COVENANTS OR RULES & REGS
- Can be overlooked clause
- May appear as an Exhibit or an Addendum
- Review of examples found in this clause
- Examples: Access hours, HVAC hours and after hour, charges, trash removal, janitorial schedule of services, security service hours, cafeteria, etc.
- Pet policies could be included (special service animal exclusions)
- Examples of other restricted uses or prohibited behavior, weekend activity, food and alcohol usage, catering restrictions, etc.
- Interruption of services may be disclosed
I. HVAC AND UTILITIES
- Services being provided by landlord to the tenant’s space or common areas
- Difference between services and operating costs.
- Segregating services and reimbursement costs.
- Common or sub-metered?
- Audit rights on service reading
- Tenant issues if it has a national utility contract
- Tenant need for 68-70F constant service and stipulated buffer
- Details on stipulated hours of HVAC, after-hour needs and notifications and any after-hour tenant charges
- Self-help/Off-set language may be included as penalty
References: It is recommended to the instructor that sample lease clauses are used with the material. Instructor should be aware of any new courts cases that may be included with these clauses. Copies of Commercial Lease Commercial Lease Forms, James W. Hackett & Timothy M. Smith; Copies of Commercial Lease Forms, Commercial Brokers Association of Greater Boston Real Estate Board and MGL Ch. 183, Section 4.