A. INTRODUCTION
- This session includes other important miscellaneous commercial clauses that can be relevant to both the landlord and tenant
- It is only a sample of many clauses in a lease that can be negotiated and is not all inclusive
- There are distinct differences between a residential and commercial lease
- Differences in the culture and negotiating practices
- Lease is more business to business
B. BANKRUPTCY CLAUSE
- Has become a very relevant clause in the last few years
- Has become relevant from a business standpoint (not just legal) for the landlord and tenant.
- Security deposits may be considered a tenant asset
- Landlord’s advantages and disadvantages of a Letter of Credits (LOC)
- Review of automatic stay going into effect
- Landlord restriction of further eviction actions
- Restriction use of security deposit for rent or reimbursables
- Issues if building is foreclosed
- Bank bankruptcy issues if holding the LOC
- Lease language of bankruptcy being a default and its relevancy impact.
- Review of Letter of Credit vs. security deposits vs. irrevocable letter of credit
C. REPAIRS AND MAINTENANCE
- Specifies party responsibility for repairs. Need for clarity.
- Review negotiating points of a repair vs. replacement.
- Defining repair vs. replacement
- Landlord's obligations
- Tenant's obligations
- HVAC issues and air conditioning tonnage
- Inspecting premise before signing lease
- Plate Glass responsibility and insurance
- Self Help and Rent off-set language
- Examples of repairs
- Limiting expense amounts for both landlord and tenant
- Negotiating promptness for repair and penalties
- Review of Wesson vs. Leone Enterprises
- Facing downtime from repeated repairs
D. ESTOPPEL CLAUSE
- Summarizes and confirms rent, terms, outstanding debt, repair or dispute issues.
- Discuss when the estoppel clause is implemented
- Example of form and length.
- Definition of Estoppel: “to stop or prevent a person from contradicting a previous statement”.
- Tenant’s use of estoppel. Having a landlord confirm a lease. MGL Ch. 183, Section 4 relevancy
- Tenant merger or acquisitions
- Lender need for estoppel
- Prospective buyer need for estoppel
E. SIGNAGE CLAUSE
- May state tenant’s rights to signage, location, font, color and size, color, cost responsibility and restoration issues.
- Examples can include tenant directory and marquis, tenant door and exterior building
- Language should address the party responsible to pays, illuminating
- Will stipulate sign to be in compliant with local by-laws and responsibility of obtaining permits
- Will restrict real estate broker signs for lease.
- Restrictions of any fire or bankruptcy sale signage
- Exterior premium signage for major tenants
- Possible additional rent for signage
- Tenant’s restrictions of other tenant signage
- Landlord approval rights and removal of signs
- Review “Rules and Regulations”
F. PATRIOT ACT
- U.S. Government Patriot Act prohibits landlord leasing to a known or suspected terrorist.
- Researching the U.S. Treasury “Specifically Designated National and Blocked Person” list.
- Broker knowledge of tenant background.
G. SIGNATURES AND GUARANTEES
- Often found on the last page of the lease
- States the authorized persons signing
- Can verify the landlord signature authorization with Secretary of State’s office
- Tenant avoiding personal signatures
- Use of Certificate of Clerk/Secretary Certificate or Corporate Resolution
- Issues of an affiliate of a parent company for tenant guarantee
- Guarantee can be limited
- Tenant spinoff issues: Parent may still be guaranteeing
- “Good Guy” guarantee if tenant defaults and tenant agrees to vacate
- Real estate broker signature may be on the lease
- Lender signature could be present for SNDA.
H. CONTINUOUS OPERATIONS
- Stipulates tenant must operate on specific days or specific hours
- More prevalent in retail leases
- Default issues
- Protects landlord with Co-Tenancy
- Helps “in-line” tenant with assurances of “anchor” tenant presence
- Will affect the vitality of the shopping center
- Issues for tenants not wanting to comply
- Seasonal businesses or non-peak customer times.
I. PREMISE CLAUSE
- Describes the physical area to be leased
- Describes the leased area permitted for tenant’s use
- May describe appurtenance rights and parking access
- Parking may be described as designated, exclusive or non-reserved
- May state the area in legal description, metes and bounds
- Size description as rentable square feet (RSF) and disputes issues.
- May include floor plans, maps, sketches, renderings, area of building, floor location, etc.
- Could be an “Exhibit” at the end of a lease
- Might state usable square feet (USF) or RSF or gross square footage.
- Issues with dispute of square footage and rental income obligation
- Rights to re-measure premise for accuracy
- Confirming USF and common area factor (CAF)
- Description for outdoor storage?
- Issues of no legal standard to measure space
- Use of architects or space planners measurement
- Accuracy of square footage for pro rata definition
- Differences with methods to measure space
- Clarity of premise for “yield-up”
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.