[author: Stefanie L. Brennan]
This article is based on a presentation at the Pennsylvania Bar Institute’s 16th Annual Real Estate Institute by Pepper attorneys Matthew J. Swett and Hannah Dowd McPhelin.
Landlords and tenants pay much time and attention to the basic economic terms of a lease as well as other highly contested provisions, such as assignment and subletting and defaults and remedies. But parties often skim over certain so-called “boilerplate provisions” without considering their effect on the overall lease. Landlords and tenants need to understand the potential impact of these customary provisions on the larger deal, and negotiate them accordingly. Here are five standard provisions found in nearly every commercial lease, and our suggestions on how parties can rethink the implications for their next lease transaction.
Quiet Enjoyment. For a tenant, the covenant of quiet enjoyment is essential. The quiet enjoyment provision protects a tenant’s right to occupy and use the premises during the term free from interference by the landlord or any third party claiming through the landlord. Landlords should ensure that the quiet enjoyment provision is subject to the tenant complying with all of the terms and conditions of the lease. Additionally, if a landlord insists that the covenant of quiet enjoyment be subject to a mortgagee’s rights, the tenant should demand a subordination, attornment and non-disturbance agreement.
Estoppel Certificate. Landlords should include a requirement that the tenant deliver an estoppel certificate upon the landlord’s request. Tenants will want to make sure that the estoppel is limited to factual matters, and that the lease provides the tenant with adequate time to respond to the landlord’s request. On larger leases, a tenant may consider requiring the landlord to provide an estoppel certificate to the tenant as well. The form of the estoppel should be attached to the lease as an exhibit, and the parties should consider what remedies will be available if a party fails to timely deliver the estoppel certificate.
Financial Statements. A landlord will want to include a provision in the lease requiring the tenant to deliver its financial statements to the landlord from time to time during the term, and/or in connection with a landlord financing or potential sale of the property. Tenants should limit the requirement to include only financial information that the tenant currently maintains and should require that the landlord keep all financial information confidential. If the tenant’s financial statements are publicly available, it should not be required to deliver them to the landlord.
Brokers. Every lease should include a standard brokerage provision that identifies all brokers that are involved in the transaction (or represents that no brokers were involved). The provision should also state how the brokers will be paid and provide for a mutual indemnity in the event that either the landlord or the tenant breaches its representation related to brokers.
Authority Representation. Often the authority representation can be found at the end of a lease in the “Miscellaneous” or “Additional Provisions” section. If a lease does not include this representation, or if the representation is only made by the tenant, the provision should be added or expanded to be mutual. The authority representation confirms the identity of the entity or individual entering into the lease, and provides assurance that the party giving the representation has the authority to enter into the lease and that the individual signing on behalf of each party has the authority to bind such party to the lease.