It’s bad enough having to call your real estate litigator. But it’s worse when he or she tells you that your lease is missing some critical provision that would help you in your current dispute. Every commercial lease is different, but there are provisions that most leases do or should have. Here are 10 provisions your litigator wants to see in your lease.
1. Everything 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. You’ll get paid – I guaranty it. 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. Of course, large commercial tenants generally do not provide guaranties, often leaving the landlord as a creditor in a bankruptcy. Just ask Sports Authority’s landlords.
3. This is what it looked like when I got here. Specify in 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 (i.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. How is that 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.
6. Pass through costs. Commercial leases typically provide that costs relating to common areas be passed through to tenants, usually pro rata (proportionately) based on the percentage of the overall property that the tenant occupies. 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.
7. It’s not you; it’s me. 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.
8. I need a remedy. What happens when the landlord or tenant defaults? 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.
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. I won, now pay my fees. 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.
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