When Reviewing a Lease, Consider Using Non-Legal Professionals

When attorneys prepare a lease, it may be easy to forget that there are other professionals out there who can (and should) assist them. Just because the lease is a “legal” document does not mean that a lawyer should negotiate a deal without the help of other players on his/her real estate “team.” Without the assistance of a lawyer's teammates, an attorney may not be providing nearly as effective legal counsel for his/her client as s/he should be. In fact, many of the best attorneys understand the importance of utilizing a group of experts when they review a lease. This article focuses on two of the most frequently misunderstood areas of a lease: insurance and construction provisions.

Insurance Provisions

One of the most common sections where the expertise of other professionals is required is the insurance section. Whether you are an attorney representing a tenant who has been sent a landlord's version of a landlord's “standard” lease or an attorney representing a landlord who has been sent a tenant's mark-up of your form lease, it is equally important to have the insurance provisions that have been sent or marked-up by the other party reviewed by a competent insurance consultant.

Beware of Outdated Insurance Terminology

There may be outdated insurance terminology that you, as the lawyer, may not be aware of. For example, references to “all risk” insurance in the lease ceased to exist long ago. Although the safe bet is always to add, “or the industry equivalent” after insurance terminology with which you are not familiar, it is an even better practice to use the correct lease terms in your lease draft. And note, although “Special Causes of Loss Form” insurance (as opposed to “all risk”) may be the correct term today, that could change tomorrow. Are you confident enough to be sure you are using the right name for the right coverage? If you do not know whether the most up-to-date term for liability coverage is “commercial general liability” or “comprehensive general liability” (it is the former), then it may be a signal that an experienced risk manager should take a look at your lease. Use of outdated terms also alerts you that there may be other insurance provisions that need to be revised. It makes sense to have an insurance professional, who is more likely aware of the most up to date insurance policy revisions in the insurance industry, take a look at your insurance provisions.

Do You Know What All Insurance Terms Mean?

There may be numerous insurance terms that you may not fully understand.

• Do you know the difference between umbrella insurance, excess insurance and blanket insurance?
• Do you know the difference between a named insured and an additional insured?
• Can you explain what a loss payee is and when it applies?
• Do you know the difference between an Accord 25 and an Accord 27?

If you don't know what any or all of these terms mean, it would probably be a prudent decision to seek the help of an insurance professional. Reviewing insurance certificates sent by tenants poses similar concerns. Are you 100% sure that the insurance coverage mentioned in the certificate matches the insurance requirements set forth in the lease? If you have a doubt, have an insurance professional confirm that the insurance certificate is satisfactory.

Are the Limits of Insurance Required By the Lease Correct?

Insurance agents often are more familiar with the property being leased, at least from an insurance perspective, than you are. They can, therefore, give you valuable advice as to how much insurance is proper and necessary for your client. Because your insurance consultant may have insured similar premises in the area, the consultant may be in a much better position to know the right amount of insurance coverage that should be required than you would be. Also, with certain coverages, such as Workers' Compensation Insurance, the amount of insurance required pursuant to the lease provisions may be greater than the coverage that is required by law. Do you know the insurance coverage requirements for Workers' Compensation Insurance in your state?

Construction Provisions

Do You Know the Right Timeline for the Construction to Be Performed?

Especially when there is substantial construction work that needs to be done before a tenant can move into a space, a careful review of landlord's and tenant's work provisions may be necessary. Timelines can be a key factor in this process. For most practitioners, relying on the architects and engineers to advise on how long it should take to obtain permits, construct a certain phase of the project or to review construction plans can give a far more accurate idea of the time necessary to perform these tasks or obtain such approvals than if they were to try and figure it out on their own. For example, when surveys need to be ordered as part of a tenant's due diligence in a project, will you consider that weather (e.g., snow, at least in the Northeast) can be a factor?

Reviewing Work Letters

Never assume that the work the other party is performing is correct until your client tells you it is correct. With that said, on many deals where the work letters can be quite complicated, it is always a good practice to confirm with the construction professionals on your team that they have also reviewed and approved the timelines, as mentioned herein, and all other aspects of the work letter.

Again, as in the insurance section of the lease, there may be technical terms that need to be looked at by someone who is familiar with them on an everyday basis. For example, one work letter states each floor shall provide a minimum vertical clearance of 12 feet A.F.F. Do you know what “A.F.F.” means? That same work letter mentions that all perimeter walls shall be prepped with “finish #4.” Personally, I have no idea what finish #4 means. I would rather have my construction professional explain it and tell me what we need. In New York City leases, there are frequent references to ALT-1 and ALT-2 applications. Do you know the difference between the two? If you are doing a lease in New York City, do you know what an ACP-5 is?

Moreover, not only do you need to know specific technical terms, attorneys also need to confirm that the factual information noted in the work letter is correct. For instance, the same work letter mentioned above also stated that the conduit must extent six inches above the finished sheetrock. It is highly unlikely that you will know if the correct number is six inches or some other number. The difference could be significant. Do not guess.

Conclusion

There can be many other areas in a lease where professional advice is needed. If specific decibel-level provisions need to added, if you need to review a certificate of occupancy to confirm that your client's use is permitted, or if there are thorny environmental issues that arise on a particular deal, there are professionals who can help you sort through these issues to allow you, as the attorney “quarterbacking” the transaction, to be confident that the lease fully protects your client's interests. By utilizing various professionals to assist in analyzing a lease, you will be giving your client the most thorough review of a lease that you can give.

Mark Morfopoulos, a member of this newsletter's Board of Editors, is an attorney in the real estate department at Wachtel Missry LLP. Reach him at [email protected].

When attorneys prepare a lease, it may be easy to forget that there are other professionals out there who can (and should) assist them. Just because the lease is a “legal” document does not mean that a lawyer should negotiate a deal without the help of other players on his/her real estate “team.” Without the assistance of a lawyer's teammates, an attorney may not be providing nearly as effective legal counsel for his/her client as s/he should be. In fact, many of the best attorneys understand the importance of utilizing a group of experts when they review a lease. This article focuses on two of the most frequently misunderstood areas of a lease: insurance and construction provisions.

Insurance Provisions

One of the most common sections where the expertise of other professionals is required is the insurance section. Whether you are an attorney representing a tenant who has been sent a landlord's version of a landlord's “standard” lease or an attorney representing a landlord who has been sent a tenant's mark-up of your form lease, it is equally important to have the insurance provisions that have been sent or marked-up by the other party reviewed by a competent insurance consultant.

Beware of Outdated Insurance Terminology

There may be outdated insurance terminology that you, as the lawyer, may not be aware of. For example, references to “all risk” insurance in the lease ceased to exist long ago. Although the safe bet is always to add, “or the industry equivalent” after insurance terminology with which you are not familiar, it is an even better practice to use the correct lease terms in your lease draft. And note, although “Special Causes of Loss Form” insurance (as opposed to “all risk”) may be the correct term today, that could change tomorrow. Are you confident enough to be sure you are using the right name for the right coverage? If you do not know whether the most up-to-date term for liability coverage is “commercial general liability” or “comprehensive general liability” (it is the former), then it may be a signal that an experienced risk manager should take a look at your lease. Use of outdated terms also alerts you that there may be other insurance provisions that need to be revised. It makes sense to have an insurance professional, who is more likely aware of the most up to date insurance policy revisions in the insurance industry, take a look at your insurance provisions.

Do You Know What All Insurance Terms Mean?

There may be numerous insurance terms that you may not fully understand.

• Do you know the difference between umbrella insurance, excess insurance and blanket insurance?
• Do you know the difference between a named insured and an additional insured?
• Can you explain what a loss payee is and when it applies?
• Do you know the difference between an Accord 25 and an Accord 27?

If you don't know what any or all of these terms mean, it would probably be a prudent decision to seek the help of an insurance professional. Reviewing insurance certificates sent by tenants poses similar concerns. Are you 100% sure that the insurance coverage mentioned in the certificate matches the insurance requirements set forth in the lease? If you have a doubt, have an insurance professional confirm that the insurance certificate is satisfactory.

Are the Limits of Insurance Required By the Lease Correct?

Insurance agents often are more familiar with the property being leased, at least from an insurance perspective, than you are. They can, therefore, give you valuable advice as to how much insurance is proper and necessary for your client. Because your insurance consultant may have insured similar premises in the area, the consultant may be in a much better position to know the right amount of insurance coverage that should be required than you would be. Also, with certain coverages, such as Workers' Compensation Insurance, the amount of insurance required pursuant to the lease provisions may be greater than the coverage that is required by law. Do you know the insurance coverage requirements for Workers' Compensation Insurance in your state?

Construction Provisions

Do You Know the Right Timeline for the Construction to Be Performed?

Especially when there is substantial construction work that needs to be done before a tenant can move into a space, a careful review of landlord's and tenant's work provisions may be necessary. Timelines can be a key factor in this process. For most practitioners, relying on the architects and engineers to advise on how long it should take to obtain permits, construct a certain phase of the project or to review construction plans can give a far more accurate idea of the time necessary to perform these tasks or obtain such approvals than if they were to try and figure it out on their own. For example, when surveys need to be ordered as part of a tenant's due diligence in a project, will you consider that weather (e.g., snow, at least in the Northeast) can be a factor?

Reviewing Work Letters

Never assume that the work the other party is performing is correct until your client tells you it is correct. With that said, on many deals where the work letters can be quite complicated, it is always a good practice to confirm with the construction professionals on your team that they have also reviewed and approved the timelines, as mentioned herein, and all other aspects of the work letter.

Again, as in the insurance section of the lease, there may be technical terms that need to be looked at by someone who is familiar with them on an everyday basis. For example, one work letter states each floor shall provide a minimum vertical clearance of 12 feet A.F.F. Do you know what “A.F.F.” means? That same work letter mentions that all perimeter walls shall be prepped with “finish #4.” Personally, I have no idea what finish #4 means. I would rather have my construction professional explain it and tell me what we need. In New York City leases, there are frequent references to ALT-1 and ALT-2 applications. Do you know the difference between the two? If you are doing a lease in New York City, do you know what an ACP-5 is?

Moreover, not only do you need to know specific technical terms, attorneys also need to confirm that the factual information noted in the work letter is correct. For instance, the same work letter mentioned above also stated that the conduit must extent six inches above the finished sheetrock. It is highly unlikely that you will know if the correct number is six inches or some other number. The difference could be significant. Do not guess.

Conclusion

There can be many other areas in a lease where professional advice is needed. If specific decibel-level provisions need to added, if you need to review a certificate of occupancy to confirm that your client's use is permitted, or if there are thorny environmental issues that arise on a particular deal, there are professionals who can help you sort through these issues to allow you, as the attorney “quarterbacking” the transaction, to be confident that the lease fully protects your client's interests. By utilizing various professionals to assist in analyzing a lease, you will be giving your client the most thorough review of a lease that you can give.

Mark Morfopoulos, a member of this newsletter's Board of Editors, is an attorney in the real estate department at Wachtel Missry LLP. Reach him at [email protected].