RE70C11: Commercial Lease Clauses: Part II

Approved Sept. 27, 2011

A. Notice of Lease (10 mins)

1. Notices of Lease are typically used so that lease details are not disclosed

a. Notice of Lease is required to be recorded if lease term is more than 7 years to protect the tenant against third parties who do not have actual notice of the lease.

b. Must be recorded at the registry or land court

c. Notice executed by all parties and detailed: MG.L. c. 183, Section 4

d. Date of Lease execution

e. Lease Term

f. Commencement Date

g. Description of Leased premises as in lease

h. Stated extension and renewal rights, if any

B. Parties and Power to Lease (5 mins)

1. Writing an enforceable lease

a. Statute of Frauds requires that a lease is in writing and signed by both parties with effective delivery

b. Writing an enforceable lease should not be developed by a landlord or tenant. The use of a real estate attorney is critical. An attorney understands state and contractual laws to develop an enforceable lease.

2. Prior to entering into a lease, both parties should determine the existence and authority of the other party’s signatures in order to avoid a potential problem.

3. Prospective tenants should be alert to the following:

a. Legal title in a party other than the landlord

b. Evidence of foreclosure proceedings

c. All with only leasehold title (unless an assignment or sublet is contemplated)

d. Evidence of possession of another tenant

e. Evidence of adverse possession, seizure, or exercise of eminent domain

f. A Lis Pendens or other legal challenge to ownership

C. Condition of Premises (10 mins)

1. Tenant duty is to “Keep good order and repairs”

a. Ordinary wear and tear

b. Fire & unavoidable casualty

c. Eminent domain

d. Landlord acts or omissions

e. Delays beyond tenant’s control (force majeure)

2. “Yield-Up or Surrender” of possession provision

a. Giving the space back at lease expiration

b. Repair Issues

c. Normal wear and tear

d. Acceptable Condition and Documentation

3. Environmental concerns

a. Representations by Landlord and tenant and tenant duties during occupancy

b. Discussion of fire, casualty and eminent domain concerns

D. Improvements and Alterations to the Property (10 mins)

1. Sometimes merged with Repairs and Maintenance Clause

2. Landlord’s courtesy to tenant on allowing tenant to conduct construction work in the premise prior to

or after occupancy under certain terms and conditions.

3. Tenant has no obligation unless agreed upon

4. Landlord may contribute toward tenant work such as:

a. Disbursement terms

b. Income tax issues

c. Workman like

d. Landlord “signs off” on work

5. Indemnification by tenant to Landlord for tenant work

6. Lease provisions to allow landlord to make alterations

E. Insurance, Subrogation and Indemnity (15 mins)

1. Insurance

a. Fire and Casualty

b. Liability

c. Rent insurance and business interruption

d. Insurable interest

2. Subrogation

a. The right of an insurer who pays a claim to pursue the landlord or tenant for recovery

b. Landlord or tenant is entitled to recover from 2 different sources

c. The tortfeasor (primary) and an insurer (secondary)

d. Insurer “steps into the shoes” of the tortfeasor

e. For example, “Takes over insured rights”

3. Indemnity - Contract (lease) provision between landlord and tenant whereby rights associated with 3rd party claims are allocated

4. Exculpatory clause

a. Exculpation is a statement clause that landlord is not responsible for anything and not liable for anything that damages property of tenant

b. Exculpation is a Latin term meaning “to hold blameless”

c. The clause limits the recourse of tenant against Landlord defaults

d. An agreement by which one party contractually avoids liability to another

e. Typical tenant covenants to hold the landlord harmless and it may be reciprocal

f. Landlord includes clause “no warranties, etc.” other than those in lease

g. Landlord cannot transfer liability to the tenants, arising from any omission, fault, negligence or other misconduct of the Landlord or about the leased premises. (MGL C. 186, Section 115)

F. Landlord’s Representations and Warranties (15 mins)

1. Quiet Enjoyment

2. Give tenant right to possession

3. No implied warranty for habitation

a. Tenant takes on an “estate.” A lease ordinarily creates in the tenant an estate on condition,terminable by the landlord’s entry for condition broken by the tenant

b. Types of estates and leasehold to be discussed: Leasehold estate in land, leasehold estate, fee simple estate, tenancy, estate in real property, estate from period to period, estate at will, estate at sufferance, estate for years

c. A lease is more than an instrument creating an estate (also contains covenants or promises by the tenant and the landlord)

d. Tenant should inspect

e. Landlord or tenant improvements

f. Complies with laws and no defects: if leasehold improvements

4. Landlord discloses known defects

a. Dangerous conditions

b. Code violations

5. Landlord to maintain common areas

6. Appurtenant Rights

a. Lights and Air

b. Easements

G. Landlord’s Reserved Rights (15 mins)

1. Rights of re-entry

a. To demand payment

b. To repair and prevent waste

c. To keep conditions safe

d. To expressly reserved

2. Hold-Over tenants

a. Landlord stated penalties to tenant for not vacating the space when lease expires; holding over beyond the lease expiration

b. Estate at sufferance

3. Confidentiality by Landlord

a. Normally to other than mortgages and buyers

b. Could be stated as a separate lease clause

H. Excuses From Paying Rent (40 mins)

1. Independent vs. dependent covenants

a. Wesson v. Leone Enterprises (437 Mass. 708 SJC)

2. Constructive Eviction

a. Walker Ice Co. vs. AM Steel & Wire Co. 185 Mass 463

3. Void and Voidable leases (i.e. Broker has no authority to act)

4. Eviction

a. Interference by Landlord, 3rd party or title holder

5. Actual eviction

6. Title defect

7. Landlord duty in Mass. to deliver premises

8. To use premises for purposes intended

9. Tenant should provide for contingencies for building repairs, alteration and signage

10. Surrender of premises, if agreed upon, doesn’t cure breaches

11. Apportionment of rent

a. Mid-tenancy termination or transfer to new tenancy

12. Abatement: physical damage, fire or casualty

13. Eminent domain

14. Self-help and Off-Set

References: It is recommended to the instructor that sample lease clauses are used with the material. Cases cited in Course Outline Lease Drafting in Massachusetts, Edward M. Bloom et al.: Copies of LOI and 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.

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