Commercial Leases -- Be wary of ‘boilerplate’ provisions that can bite.

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Commercial leases are in many ways the most complicated of real estate transactions. When you buy a piece of property, the purchase agreement sets forth the terms of the purchase, and once the transaction has closed, most of those terms are no longer needed. On the other hand, when you enter into a lease, the lease agreement will include terms that will govern your relationship between the parties for the entire term of the lease, whether it’s five years, 10 years or longer. Much time and energy is spent negotiating the rent, the common area costs and other important economic terms. But there are other provisions, ones that are often overlooked as “boilerplate” provisions, which may have a significant impact on both parties. Let’s consider a few examples.

Compliance with Laws

Most commercial leases include a provision requiring the tenant to comply with all laws and ordinances applicable to the use and occupancy of the leased premises. What happens if the applicable laws change during the lease term? For example, what if the fire safety system for the entire building needs to be upgraded? Is the tenant required to pay for the new sprinkler system, at least to the extent it is located within the premises? And if so, is the cost amortized over the useful life of the improvements, or is the tenant obligated to pay the entire cost up front? Standard lease language often fails to address these issues and can leave at least one of the parties wishing it had paid more attention to this provision before signing the lease.

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Published In: General Business Updates, Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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