Avoiding Boilerplate Traps in Commercial Leases

Force Majeure

Here's a typical landlord-friendly version of a force ma-jeure provision:

If either party shall be delayed or hindered in or prevented from the performance of any act required hereunder by Force Majeure, then, except as expressly provided herein to the contrary, performance of such act shall be extended for a period equivalent to the period of such delay. The foregoing shall not apply to either Party's obligations to pay any sums due hereunder to the other Party as required herein.

Note how the last sentence requires the tenant to continue payment of rent and any additional sums due, regardless of any delay caused by force majeure.

Note also that the landlord-friendly provision fails to define force majeure, so it's unclear whether (for example) strikes, lockouts, or other labor disputes would be sufficient to extend the period of performance by either party.

By contrast, here's a tenant-friendly version:

If Tenant is delayed or prevented from performing any of its obligations under this Lease by reason of strike, lockouts, labor troubles, failure of power, riots, insurrection, war, acts of God, or any other cause beyond Tenant's control, the period of such delay or such prevention shall be deemed added to the time period herein provided for the performance of any such obligation by Tenant.

This provision refers only to situations in which the tenant is excused from performance of its obligations. No mention is made of excusing the landlord from performance of its obligations due to force majeure.

Holdover

Landlords generally seek to increase as much as possible the rent due during a holdover period, and also seek to disclaim expressly the creation of a month-to-month tenancy, using a boilerplate holdover provision such as the following:

If Tenant continues to occupy the Premises subsequent to any expiration or other termination, whether or not with the consent or acquiescence of Landlord, such shall be deemed to be that of a tenancy-at-will and in no event a month-to-month tenancy or year-to-year tenancy, and it shall be subject to the same terms, covenants, and conditions of this Lease, except that the Rent shall be three times the amount payable in the last year of the immediately preceding Term. No extension or renewal of this Lease shall be deemed to have occurred by such holding over.

Tenants wish to minimize the amount of rent required to be paid during any holdover period, and also wish to establish at least a month-to-month tenancy. For example:

In the event Tenant continues to occupy the Premises after the last day of the Term, as may have been extended, a tenancy from month-to-month only shall be created, and the Rent shall remain the same.

Notice

The Notice provision delineates the ways for giving notice, as well as how to determine if notice is deemed received. Drafting of this provision affects whether a default has occurred or whether a tenant has timely exercised an option to extend the term of the lease. The following commonly used notice precludes the tenant from any other method of service that might otherwise be allowed:

Wherever in this Lease it shall be required that any notice, request, report, communication, or demand be given, served or transmitted by either party to this Lease to or on the other, such notice or demand shall be in writing and shall be personally delivered or forwarded by certified mail, return receipt requested, or by nationally recognized courier service providing written confirmation of delivery, to the addresses of the parties specified herein. Notice shall be deemed to have been given or served on the delivery date indicated by the United States Postal Service or courier service on the return receipt or on the date such delivery is refused or marked “undeliverable,” unless Tenant is served personally, in which event the date of personal delivery shall be deemed the effective date of notice. The foregoing method of service shall be exclusive, and Tenant waives, to the fullest extent permitted under law, the right to any other method of service required by any statute or law now or hereafter in force. Whenever multiple notices are sent or multiple methods of transmitting any notice are utilized, any time period that commences upon the giving or deemed giving of such notice shall commence upon the earliest date such delivery is effectuated, and such time shall not be extended by operation of law or otherwise because of any later delivery of the same notice.

This provision expressly limits the tenant's right to any other method of service provided by law, and also requires that any notice sent be personally delivered or that such notice be tracked by either the United States Post Office or by overnight carrier in order to determine when such notice is deemed received. Other standard notice provisions affix a certain number of days after the mailing of a notice as the time at which such notice is deemed received.

When drafting or reviewing a notice provision, be sure to decide whether notice by fax or e-mail will be allowed.

Consents

A tenant is likely to include a “Consents” provision as miscellaneous language. Such a provision is an attempt to impose a reasonableness standard on all consents required under the lease, and is often written as simply as: “Wherever in this Lease consent of a party is required for an act by or for the other party, such consent shall not be unreasonably withheld, conditioned, or delayed.”

This subtle provision may catch some landlords off-guard, and may result in the unintended consequence of requiring a landlord to act reasonably and timely when giving its consent to a request such as an assignment or sublease. Therefore, it is imperative that a landlord's representative carefully review the Miscellaneous section of a lease, especially provisions included solely for the benefit of the tenant.

Covenant of Quiet Enjoyment

Although many states now imply a covenant of quiet enjoyment, some do not, and therefore most tenants expressly include such a provision in a lease. Although most covenants of quiet enjoyment are standard, some tenants attempt to use the covenant of quiet enjoyment to require that the landlord provide a copy of owner's title insurance to enumerate any encumbrances on the premises. For example, the following provision is taken from a tenant-oriented form:

Landlord represents and warrants that Landlord is seized in fee simple title to the Premises, free and clear of all encumbrances or restrictions other than the encumbrances and restrictions found on the policy of owner's title insurance attached hereto as Exhibit ___, and such policy is true, correct, and complete, has not been amended, and pertains to the entire Premises. Provided that there shall be no Default by the Tenant hereunder as to which all times to cure shall have expired, then, subject to the terms of this Lease, Landlord warrants that the Tenant shall peaceably and quietly enjoy the Premises and appurtenances thereto without hindrance or molestation by anyone.

If the lease is drafted on behalf of the landlord, the tenant's representative must ensure that a version of the covenant of quiet enjoyment provision is included.

Hidden Substantive Provisions

Sometimes lease boilerplate even attempts to hide major substantive provisions under the guise of a “Miscellaneous” item. Here are two examples.

Restrictive Definitions

For example, a landlord may attempt to substantially limit its liability by limiting the definition of “Landlord” and by expressly limiting its liability to its equity in the Premises. One particularly landlord-friendly form includes the following provisions under “Miscellaneous”:

Landlord shall mean only the owner or mortgagee in possession for the time being of the building in which the Premises is located or the Shopping Center or the owner of a leasehold interest in said building or the Shopping Center and/or the land thereunder (or the managing agent of any such owner or mortgagee) so that in the event of sale of said building or the Shopping Center or leasehold interest or an assignment of this Lease, or a demise of said building or the Shopping Center and/or land, Landlord shall be entirely freed and relieved of all obligations of Landlord subsequently accruing.

In the event Tenant makes any claim or asserts any cause of action against Landlord as a result of Landlord's default: (a) Tenant's sole and exclusive remedy shall be against the current rents, issues, profits, and other income Landlord receives from its operation of the Project, net of all current operating expenses, liabilities, reserves, and debt service associated with said operation, and if such net income is insufficient to satisfy said judgment, then said judgment shall be satisfied out of Landlord's equity in the Project, (b) no other real, personal, or mixed property of Landlord, wherever located, shall be subject to levy on any judgment obtained against Landlord, (c) if such net income and equity is insufficient to satisfy any judgment, Tenant will not institute any further action, suit, claim, or demand, in law or in equity, against Landlord for or on the account of such deficiency, and (d) Landlord's default shall not constitute consent by Landlord for Tenant to perform or observe such terms, covenants, or conditions at Landlord's expense.

The above provision is particularly onerous for a tenant, but without careful review of the Miscellaneous section, a tenant's representative might overlook the clause and inadvertently limit the tenant's rights and remedies.

Non-Waiver

Additionally, a “Non-Waiver” clause often is included under the Miscella-neous section of a landlord-oriented form, whereas a lease drafted on behalf of a tenant will seek to omit this provision entirely. Some landlord-drafted clauses go further than others by seeking to limit a tenant's reliance on the landlord's course of dealing when claiming that the landlord has waived a particular default. For example, the following provision is taken from a landlord-friendly form:

The rights and remedies granted herein or by law or equity are separate and no one of them, whether or not exercised, shall be deemed to exclude other rights or remedies. No failure of a party to exercise, and no custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of any right or remedy granted hereunder. Receipt by Landlord of any Rent or other amount due hereunder with knowledge of the breach by the Tenant of any provision hereof shall not constitute a waiver of such breach or an accord and satisfaction. To be valid, any waiver shall be in writing and signed by the party waiving its rights, and no breach shall be deemed to be a waiver of any subsequent breach.

This provision substantially limits a tenant's ability to rely on course of dealing between the tenant and the landlord when arguing whether a default has occurred. For example, if the landlord had been accepting rent 10 days late for the last 5 months, this provision would allow the landlord to claim a tenant default in the next month if the tenant attempted to pay 10 days late again.

Conclusion

This article has illustrated some of the many potential differences in so-called boilerplate language in commercial leases. It is the responsibility of both tenant and landlord reviewers to recognize and revise potentially onerous provisions ' wherever they appear in the lease.

When proposing changes, bear in mind that the drafting party will likely be more receptive if the revisions show respect for legitimate control rights served by the original provision.

Editor's Note: Part One of this article was adapted from the authors' article in our sibling newsletter Commercial Leasing Law & Strategy. Next month's continuation of this topic will provide additional advice by Marisa Byram.

Boilerplate in a commercial lease ' notably in the Miscellaneous section ' is not nearly as uniform and standard as one might think. Boilerplate provisions therefore merit careful review by each party to the lease, and sometimes vigorous negotiation. Law firms are often tenants but sometimes also landlords; the authors provide advice for protecting both interests.

Common Topics in Miscellaneous Section

The following common provisions illustrate improvements that may be obtainable through negotiation.

Force Majeure

Here's a typical landlord-friendly version of a force ma-jeure provision:

If either party shall be delayed or hindered in or prevented from the performance of any act required hereunder by Force Majeure, then, except as expressly provided herein to the contrary, performance of such act shall be extended for a period equivalent to the period of such delay. The foregoing shall not apply to either Party's obligations to pay any sums due hereunder to the other Party as required herein.

Note how the last sentence requires the tenant to continue payment of rent and any additional sums due, regardless of any delay caused by force majeure.

Note also that the landlord-friendly provision fails to define force majeure, so it's unclear whether (for example) strikes, lockouts, or other labor disputes would be sufficient to extend the period of performance by either party.

By contrast, here's a tenant-friendly version:

If Tenant is delayed or prevented from performing any of its obligations under this Lease by reason of strike, lockouts, labor troubles, failure of power, riots, insurrection, war, acts of God, or any other cause beyond Tenant's control, the period of such delay or such prevention shall be deemed added to the time period herein provided for the performance of any such obligation by Tenant.

This provision refers only to situations in which the tenant is excused from performance of its obligations. No mention is made of excusing the landlord from performance of its obligations due to force majeure.

Holdover

Landlords generally seek to increase as much as possible the rent due during a holdover period, and also seek to disclaim expressly the creation of a month-to-month tenancy, using a boilerplate holdover provision such as the following:

If Tenant continues to occupy the Premises subsequent to any expiration or other termination, whether or not with the consent or acquiescence of Landlord, such shall be deemed to be that of a tenancy-at-will and in no event a month-to-month tenancy or year-to-year tenancy, and it shall be subject to the same terms, covenants, and conditions of this Lease, except that the Rent shall be three times the amount payable in the last year of the immediately preceding Term. No extension or renewal of this Lease shall be deemed to have occurred by such holding over.

Tenants wish to minimize the amount of rent required to be paid during any holdover period, and also wish to establish at least a month-to-month tenancy. For example:

In the event Tenant continues to occupy the Premises after the last day of the Term, as may have been extended, a tenancy from month-to-month only shall be created, and the Rent shall remain the same.

Notice

The Notice provision delineates the ways for giving notice, as well as how to determine if notice is deemed received. Drafting of this provision affects whether a default has occurred or whether a tenant has timely exercised an option to extend the term of the lease. The following commonly used notice precludes the tenant from any other method of service that might otherwise be allowed:

Wherever in this Lease it shall be required that any notice, request, report, communication, or demand be given, served or transmitted by either party to this Lease to or on the other, such notice or demand shall be in writing and shall be personally delivered or forwarded by certified mail, return receipt requested, or by nationally recognized courier service providing written confirmation of delivery, to the addresses of the parties specified herein. Notice shall be deemed to have been given or served on the delivery date indicated by the United States Postal Service or courier service on the return receipt or on the date such delivery is refused or marked “undeliverable,” unless Tenant is served personally, in which event the date of personal delivery shall be deemed the effective date of notice. The foregoing method of service shall be exclusive, and Tenant waives, to the fullest extent permitted under law, the right to any other method of service required by any statute or law now or hereafter in force. Whenever multiple notices are sent or multiple methods of transmitting any notice are utilized, any time period that commences upon the giving or deemed giving of such notice shall commence upon the earliest date such delivery is effectuated, and such time shall not be extended by operation of law or otherwise because of any later delivery of the same notice.

This provision expressly limits the tenant's right to any other method of service provided by law, and also requires that any notice sent be personally delivered or that such notice be tracked by either the United States Post Office or by overnight carrier in order to determine when such notice is deemed received. Other standard notice provisions affix a certain number of days after the mailing of a notice as the time at which such notice is deemed received.

When drafting or reviewing a notice provision, be sure to decide whether notice by fax or e-mail will be allowed.

Consents

A tenant is likely to include a “Consents” provision as miscellaneous language. Such a provision is an attempt to impose a reasonableness standard on all consents required under the lease, and is often written as simply as: “Wherever in this Lease consent of a party is required for an act by or for the other party, such consent shall not be unreasonably withheld, conditioned, or delayed.”

This subtle provision may catch some landlords off-guard, and may result in the unintended consequence of requiring a landlord to act reasonably and timely when giving its consent to a request such as an assignment or sublease. Therefore, it is imperative that a landlord's representative carefully review the Miscellaneous section of a lease, especially provisions included solely for the benefit of the tenant.

Covenant of Quiet Enjoyment

Although many states now imply a covenant of quiet enjoyment, some do not, and therefore most tenants expressly include such a provision in a lease. Although most covenants of quiet enjoyment are standard, some tenants attempt to use the covenant of quiet enjoyment to require that the landlord provide a copy of owner's title insurance to enumerate any encumbrances on the premises. For example, the following provision is taken from a tenant-oriented form:

Landlord represents and warrants that Landlord is seized in fee simple title to the Premises, free and clear of all encumbrances or restrictions other than the encumbrances and restrictions found on the policy of owner's title insurance attached hereto as Exhibit ___, and such policy is true, correct, and complete, has not been amended, and pertains to the entire Premises. Provided that there shall be no Default by the Tenant hereunder as to which all times to cure shall have expired, then, subject to the terms of this Lease, Landlord warrants that the Tenant shall peaceably and quietly enjoy the Premises and appurtenances thereto without hindrance or molestation by anyone.

If the lease is drafted on behalf of the landlord, the tenant's representative must ensure that a version of the covenant of quiet enjoyment provision is included.

Hidden Substantive Provisions

Sometimes lease boilerplate even attempts to hide major substantive provisions under the guise of a “Miscellaneous” item. Here are two examples.

Restrictive Definitions

For example, a landlord may attempt to substantially limit its liability by limiting the definition of “Landlord” and by expressly limiting its liability to its equity in the Premises. One particularly landlord-friendly form includes the following provisions under “Miscellaneous”:

Landlord shall mean only the owner or mortgagee in possession for the time being of the building in which the Premises is located or the Shopping Center or the owner of a leasehold interest in said building or the Shopping Center and/or the land thereunder (or the managing agent of any such owner or mortgagee) so that in the event of sale of said building or the Shopping Center or leasehold interest or an assignment of this Lease, or a demise of said building or the Shopping Center and/or land, Landlord shall be entirely freed and relieved of all obligations of Landlord subsequently accruing.

In the event Tenant makes any claim or asserts any cause of action against Landlord as a result of Landlord's default: (a) Tenant's sole and exclusive remedy shall be against the current rents, issues, profits, and other income Landlord receives from its operation of the Project, net of all current operating expenses, liabilities, reserves, and debt service associated with said operation, and if such net income is insufficient to satisfy said judgment, then said judgment shall be satisfied out of Landlord's equity in the Project, (b) no other real, personal, or mixed property of Landlord, wherever located, shall be subject to levy on any judgment obtained against Landlord, (c) if such net income and equity is insufficient to satisfy any judgment, Tenant will not institute any further action, suit, claim, or demand, in law or in equity, against Landlord for or on the account of such deficiency, and (d) Landlord's default shall not constitute consent by Landlord for Tenant to perform or observe such terms, covenants, or conditions at Landlord's expense.

The above provision is particularly onerous for a tenant, but without careful review of the Miscellaneous section, a tenant's representative might overlook the clause and inadvertently limit the tenant's rights and remedies.

Non-Waiver

Additionally, a “Non-Waiver” clause often is included under the Miscella-neous section of a landlord-oriented form, whereas a lease drafted on behalf of a tenant will seek to omit this provision entirely. Some landlord-drafted clauses go further than others by seeking to limit a tenant's reliance on the landlord's course of dealing when claiming that the landlord has waived a particular default. For example, the following provision is taken from a landlord-friendly form:

The rights and remedies granted herein or by law or equity are separate and no one of them, whether or not exercised, shall be deemed to exclude other rights or remedies. No failure of a party to exercise, and no custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of any right or remedy granted hereunder. Receipt by Landlord of any Rent or other amount due hereunder with knowledge of the breach by the Tenant of any provision hereof shall not constitute a waiver of such breach or an accord and satisfaction. To be valid, any waiver shall be in writing and signed by the party waiving its rights, and no breach shall be deemed to be a waiver of any subsequent breach.

This provision substantially limits a tenant's ability to rely on course of dealing between the tenant and the landlord when arguing whether a default has occurred. For example, if the landlord had been accepting rent 10 days late for the last 5 months, this provision would allow the landlord to claim a tenant default in the next month if the tenant attempted to pay 10 days late again.

Conclusion

This article has illustrated some of the many potential differences in so-called boilerplate language in commercial leases. It is the responsibility of both tenant and landlord reviewers to recognize and revise potentially onerous provisions ' wherever they appear in the lease.

When proposing changes, bear in mind that the drafting party will likely be more receptive if the revisions show respect for legitimate control rights served by the original provision.

Editor's Note: Part One of this article was adapted from the authors' article in our sibling newsletter Commercial Leasing Law & Strategy. Next month's continuation of this topic will provide additional advice by Marisa Byram.