Translating Landlord Legalese

Mutuality of Lease – Landlords always ask for a tenant’s financials – why not reciprocate? Remember he really wants and needs your tenancy. Let the landlord post an irrevocable letter of credit to endure that tenant improvement will be done in a timely fashion. You cannot afford to be without a home.

Another clause that emerged during the good times for landlords was limited damages to insurance and the assets of the owning entity, usually a limited liability company. But what if the building has no equity? Too bad for the tenant. The landlord wants personal guarantees from the tenant, so get them from him as well.

Are you sure he can fund your tenant improvements? Is his lender on the verge of foreclosure? Is there big vacancy in the building occupancy? Get the non-disturbance clause to guarantee that the foreclosing landlord cannot evict tenants or change rate.

Self Help or Rent Abatement – If the air conditioning does not work in the summer and repairs are a patch where replacement is needed in a multi-tenant building, self-help by the tenant does not work. How do you get the keys so the mechanical room?

Try tough rent abatement – for example, four days free rent for every day when the air conditioning does not work for more than one hour where the exterior temperature exceeds 77 degrees.

If that does not work, call the landlord and his lender. The tenant is now starting to approach constructive eviction, which is very difficult in non-residential real estate. But what better fact situation is there? How can there be quiet enjoyment of the premesis if employees cannot work due to excessive heat?

Relocation Clause – Beware of the landlord’s right to relocate a tenant to comparable spaces in the building.

For example, a medical doctor was relocated from the medical wing to the general office building. Patients had longer distances to walk, and referrals from other doctors dried up.

Are window lines the same? What about the view? Is the distance from the elevator important for elderly clients? What about the business disruption to your staff?

Net Lease Repair and Replacement – Most triple net leases typical in retail and industrial situations make the tenant responsible for everything, including repair and replacement of furnace and air conditioning units. The tenant moves in and has no idea of the condition of systems.

Insert language that guarantees systems for one year and that all replacements will be pro rated to the tenant based on useful life and term of lease remaining.

This will minimize tenant’s expose and even in landlord market, is an acceptable clause.

Conclusion – Don’t be afraid to be creative – the tables have turned in the tenant’s favor. Now is the time for tenant-friendly lease language or an even better tenant lease for a large creditworthy tenant.

BIO: Levi F. Smith, a native Michigander, lives in West Bloomfield. After passing the bar in Michigan and California and practicing law for 6 years, he entered the commercial real estate field. In 1988 he founded the first corporate real estate firm, Levi F. Smith Real Estate, Inc. in Michigan to exclusively represent tenants and buyers. For more information, visit http://www.michigan-commercial-real-estate-properties.com

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LEASE CLAUSES: Don’t Win the Battle and Lose the War

LEASE CLAUSES:
Don’t Win the Battle and Lose the War