The Independent Counsel

Real Estate / Facilities


Negotiating a Fair and Reasonable Real Estate Lease


BY JAMES W. SPINDLER

When your company enters into negotiations with a prospective landlord for its new commercial space, the landlord will undoubtedly propose lease terms that favor him more than they favor your company. The following points demonstrate some terms to consider adding to the landlord’s form lease in order to achieve a better balance:

Prior Taxes and Betterment Assessments.

Your company should not accept responsibility for any municipal charges against the property for delinquent taxes or betterment assessments concerning periods that precede your lease term. Therefore, ask the landlord to warrant that, as of the date of the lease, there are no delinquent taxes or betterment assessments that may affect your occupancy of the premises. If there are any, require him to pay all of them up to beginning of lease term. In addition, ask the landlord to promise to pay all delinquent taxes and betterment assessments that relate to time periods prior to the beginning of your lease term.

Major Equipment Repairs.

Typically as tenant, you must maintain the premises and most of the related operating equipment and structures, such as heating, ventilation and air-conditioning (HVAC) units. Therefore, understand in advance the likelihood that you will have to make major repairs after the lease begins. Require the landlord to engage an HVAC contractor who would (a) inspect the HVAC units before the lease term to be sure that they are in good working order and condition and (b) make any necessary repairs or replacement of parts. Also, require the landlord to arrange to clean all sewer and drain lines that serve the premises.

Alterations, Additions or Improvements.

Ordinarily, as tenant, you may not make changes to your space without the landlord’s consent. Ask the landlord to agree to respond to any reasonable request for changes within, say, five business days, or a shorter time if possible. Without such a commitment, you could have to wait indefinitely for a response before knowing whether you may proceed with changes.

Consents from Landlord.

Leases often prohibit a tenant from taking certain actions without the prior written consent of the landlord. Have the landlord agree to not withhold consent unreasonably in all such cases. Without such language, the landlord may act arbitrarily and capriciously, and may withhold consent for any reason or none at all. By requiring landlord to be reasonable in withholding consent, you can expect to be treated more fairly whenever you ask the landlord to consent to your action.

EFT Costs.

Make the landlord bear any electronic funds transfer (“EFT”) costs. In some cases, a lease may require you, as tenant, to make rental payments by electronic funds transfers, or the landlord may notify you to make future payments by EFT. In all instances, pass the cost of the transfers to landlord by deducting the transfer costs from the amount transferred. For example, if the payment is $1,000 and the transfer fee $15, arrange for electronic payments of $985. Since payments by EFT benefit the landlord and entail extra cost for the tenant, the landlord should bear that cost.

Substantiate Added Charges.

Leases often impose additional charges on the tenant in the form of taxes, betterment assessments, operating costs insurance costs, etc. Have the landlord agree to substantiate all charges by providing copies of actual invoices, or by making the originals available to you at reasonable times and places for review and acceptance.

You will allocate the costs and responsibilities of a real estate lease more fairly between your landlord and your company by including the foregoing provisions throughout your lease.

Comment: If the landlord will not agree to include the foregoing, consider finding different space and a landlord who will treat your company more fairly.

© ASSOCIATION OF INDEPENDENT GENERAL COUNSEL 1996; (all rights reserved). This article is not intended as legal advice. Consult a qualified attorney for assistance concerning a specific issue or problem.