Mar 14, 2016

A Tenant's Guide To Commercial Lease Clauses Part 2

By Don Catalano


A_Tenants_Guide_To_Commercial_Lease_Clauses_Part_2Welcome back to Part 2 of "A Tenant's Guide to Commercial Lease Clauses."  Here is Part 1 in case you missed it.


Co-tenancy Clauses

Co-tenancy lease clauses are common in retail settings. They are usually written to give you the right to reduce your rent or vacate the property if another tenant moves out. For example, if you operated a pediatric dental practice in a shopping center three doors down from a grocery store, your co-tenancy clause would let you move out if the grocery store closed. The logic behind this is that the large anchor is likely to drive traffic to your practice and if it goes, you will need to leave as well.


Defaults and Remedies

Your lease will also define what happens if you or your landlord don't keep your obligations under the lease and what either of you will need to do to make it right. For instance, if you stop paying rent, your landlord usually has the right to evict you and to collect for some or all of the unpaid portion of your lease. On the other hand, if your landlord fails to keep the building in serviceable condition, you may have the right to make the repairs and subtract what you pay from your rent or to vacate the building.


Description of Premises

Description of Premises lease clauses might seem simple and obvious. Typically, they state basic facts like the location of the building and size and location of the leased space inside of it. However, if the measurements used for this clause are incorrect or intentionally biased, you could end up paying unnecessary rent. An error in the clause could place your rights to occupy the space under question, as well.


Estoppels and Lender Agreements

Many leases require tenants to execute documents on behalf of a landlord or its lender. Typically, you will be required to sign an estoppel certificate and a subordination, non-disturbance and an attornment agreement (SNDA), when a lender or buyer requests it. The estoppel certificate is a document that has you certify that an attached copy of is truly the real lease. It's a way to make sure that you don't have special "side" agreements. SNDAs are agreements between you and a lender where you agree to let the lender take the property in a foreclosure regardless of your rights and the lender agrees to honor your lease as long as you're fulfilling your responsibilities. Usually, your lease will specify how long you have to send back the documents and what rights, if any, you have to modify them.

Financial Information and Guarantees

Understandably, landlords like to make sure that they will be able to collect their rent. To that end, many include lease clauses that allow them to review your company's financials prior to signing and throughout the lease. Other will have you include guarantees either from parent companies or from yourself personally. This gives them another entity to go after if the company signing the lease doesn't pay.


Lease Term

Most leases that are not month-to-month specify when they start and how long they run. As with Description of Premises lease clauses, the Lease Term clause can hide complexity. For example, many leases start long before you move in. In addition, read the language carefully, since you might need to notify the landlord of your intent to move (or to stay) months before your lease term actually expires.


Here is Part 3.


Other great articles to check out:

Basics of Office Leases

Letter of Intent Tips for Tenants

Four Myths About Commercial Real Estate...Debunked


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Topics: Commercial Lease

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Don Catalano

Don Catalano