Stop! Think Before You Sign That Lease
It’s just a lease, right? That is what many people think as they put their name to the dotted line, not giving it a second thought that maybe they should get some legal advice. Most people have been a party to at least one lease in their lives and thus they have grown accustomed to them. Beware! Don’t become so at ease that you end up giving away your rights or not receiving the protection you require. Should you get in touch with a lawyer to review your apartment lease? Probably not. However, there are a few things to bear in mind when entering even the simplest agreements. Below is a list of questions to ask yourself before autographing that lease.
1. WHO ARE THE PARTIES?
Appears simple enough. You know who you are and you know who the other party is. So what’s the problem? Well, is the other party an individual or another type of entity? If you are the Lessor, and your Lessee is an LLC, have you requested a personal guarantee? Or perhaps there are business or tax rationales in favor of entering the deal under the pretext of another entity yourself.
2. SHOW ME THE MONEY!?
Reaching an agreement on the amount of rent gives the impression of simplicity; however, there are many added issues surrounding rent payments that ought to be considered. How is rent going to be determined? Is it a subjective sum or was an appraisal used in fixing it? What about periodic increases? Will an index be used or will the rate of increase be established at the execution of the lease? If the lease clearly states how these issues are to be settled, many tribulations down the road will undoubtedly be avoided.
3. HOW LONG?
What is the length of the lease you are entering into? Is it adequate or too prolonged? Are there renewal options? Setting the appropriate term is critical. Too short of a lease will hamper financing and business opportunities, and too long of one may confine you in a situation you do not aim to be in. Renewal options should be lucid and unambiguous. Many people get caught up here. Renewal options should clearly lay out how many options the parties have, how long they last, and how to exercise them.
The lease should clearly lay out what the property will be used for. It is crucial that the zoning be scrutinized in order to determine that such a use is permitted on the property. If any land use actions are necessary for the intended use of the property, it is essential that the Lessor cooperate in undertaking such actions.
5. MAINTENANCE AND REPAIRS?
Many lease disputes arise over who should deal with a maintenance problem. These differences can be headed off from the start by clearly affirming what the Lessor’s and Lessee’s responsibilities are in relation to maintenance and repairs.
6. ALTERATIONS AND TENANT IMPROVEMENTS?
Does the lease clearly depict what the Tenant improvements will consist of? Who is paying for the alterations? Whose responsibility is it to complete the improvements? What happens to these improvements at the conclusion of the lease term? These are all questions that need to be clearly answered and addressed in the lease.
7. REPRESENTATIONS AND WARRANTIES?
If you are the Lessor, have you steered clear of making unnecessary representations and warranties? Can you live up to the ones you have made? If you are the Lessee, have you received sufficient representations and warranties from the Lessor? Although this seems inconsequential right now, down the road it could be significant.
8. WHAT ABOUT INSURANCE?
Have you covered insurance in the lease? How much coverage is needed? Is it unmistakable who pays for what? What about indemnification and waiver of subrogation? These questions should all be covered in the lease.
Who is paying for utilities? Are these shared expenses? If you are the Lessee, have you checked to make sure that needed utilities are available on the property? Are there restrictions on availability?
10. ASSIGNMENTS OR SUBLEASES?
Another important issue is whether the lease is assignable and whether subleases are allowed. If you are the Lessor, you may desire to restrict assignments and subleases. If you are the Lessee, you most likely want the capability to assign or sublease.
11. OPERATING CO-TENANCY CLAUSES?
These clauses are valuable especially when dealing with retail and shopping centers. If you are the Lessee, you may be harmed by the absence of an anchor tenant and may require rent abatement. If you are the Lessor, you will desire to restrict rent abatement and cap how long it is available. Dealing with these issues ahead of time can certainly avert issues when the unforeseen occurs.
12. OPTIONS TO PURCHASE?
Many leases include options to purchase during or at the end of the lease term. It is particularly important to clearly address in the lease agreement how the option is to be exercised and how the price is to be determined. Timeframes and the effect a breach of the lease will have on the option should also be addressed in the agreement.
13. HAZARDOUS WASTE?
It is vital that hazardous waste be considered before entering into an agreement. If hazardous waste has ever been present on the property, the lessee needs to be indemnified for any issues arising out of that waste. If the Lessee is going to be using hazardous waste in their operations, there needs to be strict language dealing with that use. If these issues are not addressed up front, the responsibility for clean up may fall upon you.
14.DEFAULT AND REMEDIES?
It is important for the lease to plainly define what triggers default and what remedies are available for the parties. Don’t assume that a lease form from a stationery store will clearly address these issues. These provisions should be crafted for the individual circumstances and not consist of basic boiler plate language.
15. WHAT DO I DO WHEN IT’S OVER?
When the lease expires or terminates, what happens? There are many things to take into account. Do the improvements remain? What about the fixtures? Was there a security deposit? Is it refundable? Although the end of the lease term appears to be far into the future, don’t discount dealing with these issues up front.
As you can see, there are many things to bear in mind when entering into a lease agreement. I have outlined only some of the major issues. There are many more significant issues that may need to be covered depending upon the circumstances. If you are about to enter into a lease agreement, give us a call. We can help you avoid a number of potential future problems.