Avoiding Boilerplate Traps in Commercial Leases

In the standard office-building lease, there is typically a provision granting the landlord the express right, among other things, to rename the building. The following is an example of a landlord favorable provision:

Landlord may from time to time change the name, designation, or address of the Building or the Premises without Tenant's consent.

A change in the name of the building, the suite number of the premises or the address of the building will require a tenant to send out notices of such change to its lenders, service providers, customers and clients and require the tenant to modify its letterhead and marketing materials, all of which could add up to substantial costs for the tenant, especially if a landlord is allowed to make such changes more than once in any given year. The following provision, while still allowing the landlord to control the naming rights of the building, offers some protection to a tenant:

Landlord may from time to time change the name, designation, or address of the Building or the Premises without Tenant's consent on not less than sixty (60) days' prior written notice to Tenant; provided, however, Landlord may not voluntarily change the name, designation and address of the Building more than once in any twelve (12) month period.

By adding a notice provision, a tenant will be afforded sufficient time to prepare change of address notices to effect an easier transition for its customers and clients and to maintain continuity with its lenders and service providers.

Rules and Regulations

Another provision that is often included in a landlord-favorable lease in order to preserve the landlord's right to exercise control over the building and the common areas thereof is the landlord's right to prescribe rules and regulations concerning conduct and activity at the building. Too often, however, this right is broader than is reasonably necessary, as evidenced in the following provision:

Landlord, from time to time, has the right to make, establish and promulgate rules and regulations for the Building, and the occupants and tenants thereof, and Tenant shall observe, keep and comply with and cause its employees and invitees to observe, keep and comply with such rules and regulations.

Note that this provision does not require prior notice to the tenant before such rules are effective, which may cause the tenant to be in default under the Lease. Furthermore, nothing in this provision acknowledges that to the extent any such rule or regulation may be inconsistent or contrary to a provision in the lease, the terms of the lease should control. The following provision addresses these concerns while still allowing the landlord to maintain control over conduct and activity at the building:

Landlord, from time to time, has the right to make, establish and promulgate in good faith reasonable and nondiscriminatory rules and regulations for the safety, care and cleanliness and preservation of good order in the Building and the occupants and tenants thereof, and Tenant shall observe, keep and comply with and cause its employees and invitees to observe, keep and comply with such rules and regulations; provided, however, Landlord shall give Tenant at least thirty (30) days' written notice prior to the effectiveness of such rules and regulations, and further provided that none of the aforesaid rules or regulations may be inconsistent with this Lease or proscribe Tenant's use and occupancy of the Premises or use of the Common Areas in a customary manner for a first class office building.

In addition to requiring that the landlord give the tenant advance notice before the rules and regulations are effective, the above provision requires that the landlord be reasonable in establishing any such rules and regulations. This provision further limits the permissible scope of any rules and regulations that may be established by the landlord only to those rules and regulations regarding matters of safety, care, cleanliness and the preservation of order. Finally, this provision, as revised, requires the landlord to treat all tenants of the building similarly.

Legal Fees and Expenses

All commercial leases provide occasions whereby a tenant is responsible for the landlord's legal fees. Most commonly, the landlord requests reimbursement for legal fees: 1) incurred in connection with the discharge of any lien imposed on the landlord's property as a result of a tenant's actions; 2) incurred in connection with any indemnity rights; and 3) in virtually every lease, those incurred as a result of a tenant's uncured default (including legal fees and expenses arising from any reletting of the premises). Often, a landlord also attempts to make its tenant responsible for legal fees and expenses incurred in sending notices to the tenant as required or permitted under the lease (whether or not under a default situation) as well as those legal fees and expenses incurred in connection with the
landlord's review and consideration of a tenant's request for approval or consent under the lease.

Because the landlord's entitlement to its legal fees and expenses is peppered throughout the lease, the landlord often prefers the following provision:

Except as otherwise provided herein, all legal and other costs and expenses incurred in connection with this Lease and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.

While this provision by itself may not appear unfair, it is only upon the review of the whole lease that its favorableness to the landlord becomes apparent. The following modified provision, however, allows a tenant to recover against a landlord in the event the tenant prevails in any proceeding against the landlord:

[Same as preceding] ' In the event any party brings suit to construe or enforce the terms hereof, or raises this Lease as a defense in a suit brought by another party, the prevailing party is entitled to recover its attorneys' fees and expenses.

Sale/Exchange and Assignment By Landlord

Finally, most leases drafted on behalf of a landlord include a
provision that releases the landlord from future obligations in the event the landlord assigns its interest in the lease or otherwise sells or exchanges the building to a third person. The following is an example of such provision:

In the event of any sale or exchange of the Premises or Building by Landlord or the assignment by Landlord of this Lease (which Landlord may do in each case without the consent of Tenant), Landlord is entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises occurring after the consummation of such sale, exchange or assignment.

By contrast, the following provision, while still allowing a landlord to sell or assign its interest without the tenant's consent, conditions the effectiveness of any such conveyance on the happening of certain events:

[Same as preceding] ' provided, however, that no such sale or exchange of the Premises or Building by Landlord or assignment of this Lease by Landlord to any third person shall be effective unless and until (i) Landlord delivers to Tenant such third party's written agreement for the benefit of Tenant to assume all of Landlord's obligations and covenants under the Lease occurring after the consummation of the sale, exchange or assignment, and (ii) Landlord cures any uncured defaults of Landlord under the Lease.

Because such conditions challenge the effectiveness of any sale or assignment, thereby similarly challenging any purchaser's or assignee's interest in the building or the lease (and the party's entitlement to rent under the lease), the purchaser or assignee is more likely to make the landlord's compliance with these conditions a condition to such purchaser's or assignee's closing on the sale or assignment with the landlord. It is important to note, however, that a default by the landlord not specified in an estoppel certificate requested of the tenant will likely be deemed to be waived by the tenant under the lease for purposes of this provision.

In conclusion, as we are all too well aware, revisions to a provision in a lease are often better received by the drafting attorney when the revision attempts to preserve the purpose served by the original provision. The foregoing provisions and suggested language demonstrate ways for the tenant's attorney to protect his/her client while preserving the landlord's desired control rights.

Last month, Part One of this article provided tips by Christopher A. Jones and Scott A. Weinberg. This part discusses other possibly problematic lease provisions regarding the name/address of the building, rules and regulations, legal fees and expenses, and the sale/exchange and assignment of the lease by the landlord.

Name/Address of Building

In the standard office-building lease, there is typically a provision granting the landlord the express right, among other things, to rename the building. The following is an example of a landlord favorable provision:

Landlord may from time to time change the name, designation, or address of the Building or the Premises without Tenant's consent.

A change in the name of the building, the suite number of the premises or the address of the building will require a tenant to send out notices of such change to its lenders, service providers, customers and clients and require the tenant to modify its letterhead and marketing materials, all of which could add up to substantial costs for the tenant, especially if a landlord is allowed to make such changes more than once in any given year. The following provision, while still allowing the landlord to control the naming rights of the building, offers some protection to a tenant:

Landlord may from time to time change the name, designation, or address of the Building or the Premises without Tenant's consent on not less than sixty (60) days' prior written notice to Tenant; provided, however, Landlord may not voluntarily change the name, designation and address of the Building more than once in any twelve (12) month period.

By adding a notice provision, a tenant will be afforded sufficient time to prepare change of address notices to effect an easier transition for its customers and clients and to maintain continuity with its lenders and service providers.

Rules and Regulations

Another provision that is often included in a landlord-favorable lease in order to preserve the landlord's right to exercise control over the building and the common areas thereof is the landlord's right to prescribe rules and regulations concerning conduct and activity at the building. Too often, however, this right is broader than is reasonably necessary, as evidenced in the following provision:

Landlord, from time to time, has the right to make, establish and promulgate rules and regulations for the Building, and the occupants and tenants thereof, and Tenant shall observe, keep and comply with and cause its employees and invitees to observe, keep and comply with such rules and regulations.

Note that this provision does not require prior notice to the tenant before such rules are effective, which may cause the tenant to be in default under the Lease. Furthermore, nothing in this provision acknowledges that to the extent any such rule or regulation may be inconsistent or contrary to a provision in the lease, the terms of the lease should control. The following provision addresses these concerns while still allowing the landlord to maintain control over conduct and activity at the building:

Landlord, from time to time, has the right to make, establish and promulgate in good faith reasonable and nondiscriminatory rules and regulations for the safety, care and cleanliness and preservation of good order in the Building and the occupants and tenants thereof, and Tenant shall observe, keep and comply with and cause its employees and invitees to observe, keep and comply with such rules and regulations; provided, however, Landlord shall give Tenant at least thirty (30) days' written notice prior to the effectiveness of such rules and regulations, and further provided that none of the aforesaid rules or regulations may be inconsistent with this Lease or proscribe Tenant's use and occupancy of the Premises or use of the Common Areas in a customary manner for a first class office building.

In addition to requiring that the landlord give the tenant advance notice before the rules and regulations are effective, the above provision requires that the landlord be reasonable in establishing any such rules and regulations. This provision further limits the permissible scope of any rules and regulations that may be established by the landlord only to those rules and regulations regarding matters of safety, care, cleanliness and the preservation of order. Finally, this provision, as revised, requires the landlord to treat all tenants of the building similarly.

Legal Fees and Expenses

All commercial leases provide occasions whereby a tenant is responsible for the landlord's legal fees. Most commonly, the landlord requests reimbursement for legal fees: 1) incurred in connection with the discharge of any lien imposed on the landlord's property as a result of a tenant's actions; 2) incurred in connection with any indemnity rights; and 3) in virtually every lease, those incurred as a result of a tenant's uncured default (including legal fees and expenses arising from any reletting of the premises). Often, a landlord also attempts to make its tenant responsible for legal fees and expenses incurred in sending notices to the tenant as required or permitted under the lease (whether or not under a default situation) as well as those legal fees and expenses incurred in connection with the
landlord's review and consideration of a tenant's request for approval or consent under the lease.

Because the landlord's entitlement to its legal fees and expenses is peppered throughout the lease, the landlord often prefers the following provision:

Except as otherwise provided herein, all legal and other costs and expenses incurred in connection with this Lease and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.

While this provision by itself may not appear unfair, it is only upon the review of the whole lease that its favorableness to the landlord becomes apparent. The following modified provision, however, allows a tenant to recover against a landlord in the event the tenant prevails in any proceeding against the landlord:

[Same as preceding] ' In the event any party brings suit to construe or enforce the terms hereof, or raises this Lease as a defense in a suit brought by another party, the prevailing party is entitled to recover its attorneys' fees and expenses.

Sale/Exchange and Assignment By Landlord

Finally, most leases drafted on behalf of a landlord include a
provision that releases the landlord from future obligations in the event the landlord assigns its interest in the lease or otherwise sells or exchanges the building to a third person. The following is an example of such provision:

In the event of any sale or exchange of the Premises or Building by Landlord or the assignment by Landlord of this Lease (which Landlord may do in each case without the consent of Tenant), Landlord is entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises occurring after the consummation of such sale, exchange or assignment.

By contrast, the following provision, while still allowing a landlord to sell or assign its interest without the tenant's consent, conditions the effectiveness of any such conveyance on the happening of certain events:

[Same as preceding] ' provided, however, that no such sale or exchange of the Premises or Building by Landlord or assignment of this Lease by Landlord to any third person shall be effective unless and until (i) Landlord delivers to Tenant such third party's written agreement for the benefit of Tenant to assume all of Landlord's obligations and covenants under the Lease occurring after the consummation of the sale, exchange or assignment, and (ii) Landlord cures any uncured defaults of Landlord under the Lease.

Because such conditions challenge the effectiveness of any sale or assignment, thereby similarly challenging any purchaser's or assignee's interest in the building or the lease (and the party's entitlement to rent under the lease), the purchaser or assignee is more likely to make the landlord's compliance with these conditions a condition to such purchaser's or assignee's closing on the sale or assignment with the landlord. It is important to note, however, that a default by the landlord not specified in an estoppel certificate requested of the tenant will likely be deemed to be waived by the tenant under the lease for purposes of this provision.

In conclusion, as we are all too well aware, revisions to a provision in a lease are often better received by the drafting attorney when the revision attempts to preserve the purpose served by the original provision. The foregoing provisions and suggested language demonstrate ways for the tenant's attorney to protect his/her client while preserving the landlord's desired control rights.