Much has been written about commercial real estate in a post-Covid world. As real estate users consider how Covid will change their space needs, they should also consider what provisions will serve them in future lease-related litigation. Of course, every commercial lease is different, but there are provisions that most leases do or should have. Here are 10 questions your litigator may ask about your lease.
1. Is it in writing? If the lease isn’t in writing, the parties may have bigger problems than missing provisions. Get it in writing and make sure the lease requires that all amendments are in writing and must be signed by the landlord and the tenant.
2. Is there a guaranty? This one is for landlords. When possible, get a guaranty. If the tenant defaults on rent, there’s a good chance it’s because the business is in trouble, which means it will be tough to collect unpaid rent. A guarantor helps mitigate that risk. If the guarantor is an individual, try and get a guaranty from his or her spouse too.
3. How must the tenant return the space? Be specific about what condition the tenant must return the space to the landlord at the end of the term or on termination of the lease.
4. What can the tenant do with the space? Commercial leases typically state how the tenant can use the space. Landlords and tenants should consider whether to designate the tenant’s particular use as required (e., limit the tenant to a specified use) or permissive (typically giving the tenant some discretion as to its use of the space). It can make a difference.
5. What constitutes a breach? Some defaults, like failing to pay rent, are obvious. But there are many other obligations that the landlord or tenant may deem to be material or significant. The lease should be unequivocal about what constitutes an event of default by each party, and whether there is a cure period, and if so, what that is. What happens when the landlord or tenant defaults is also important. The remedies section for both parties needs to be specific. In many instances, Florida law will fill in the gaps where the lease does not.
6. Was there a force majeure event? Parties perhaps didn’t think much about these clauses before Covid. Whether it applies to a particular situation will depend on the language in the provision, as discussed here.
7. What costs can be passed through to the tenant? Commercial leases typically provide that costs relating to common areas be passed through to tenants, usually proportionately based on the percentage of the overall property that the tenant leases. This includes common area maintenance (often called “CAM”), and real estate taxes. A landlord can pass through only what the lease allows, so a lease should be specific on this point.
8. Can it be assigned? Landlords typically want to maintain control over the tenant’s right to assign the lease or sublease the space. A lease should specify the landlord and tenant’s rights with respect to assignments and subleases, including whether a landlord can deny an assignment for no reason at all.
9. Where will an eventual lawsuit be? Don’t leave any doubt as to where you can sue the other party or where you can be sued. Agree on jurisdiction (usually the state where the property is) and venue (usually the county where the property is).
10. Is there a prevailing party fees provision? By default, each party pays its own attorneys’ fees, regardless of outcome. The exceptions are when a statute or contract provides otherwise. A commercial lease should provide that the prevailing party in litigation can recoup its attorneys’ fees and litigation costs from the losing party.