Lease Review and Analysis
It is common to hear both tenants and landlords say
something to the effect of "hopefully we'll put the lease in a drawer
and never have to look at it again." What they mean, of course, is
that the parties hope that there won't be any "problems." But not
having any problems does not mean that the parties need not be aware
of and concerned with the provisions of the lease, or should not have
occasion to refer to the lease.
What often happens in practice, however, is that the
tenant's office manager and the building manager (the persons charged
with administering the lease) either do not know, or do not understand
the effect of, what is in the lease document beyond the fundamentals
such as the rent provisions. In many cases, the lack of knowledge
about the terms of the lease results because the persons who negotiated
the lease and the persons who will administer the lease are not the same. In any event, the parties tend only to review
the document if there is an issue such as a default, a request to
assign or sublease or make repairs, a desire to expand the premises
or extend the term, or a casualty.
This situation is unfortunate because the modern commercial
lease provides for extensive rights and obligations for both parties,
the implementation of which can have significant operational, economic
and legal consequences for both the landlord's building and the tenant's
business. Only by fully understanding those rights and obligations
and being fully cognizant of the application, interplay (such as among
insurance, casualty and indemnity provisions) and implementation of
those rights and obligations to particular situations can informed
business decisions be made and appropriate and timely actions under
the lease be undertaken.
We believe that it is important for both landlords and
tenants to have leases reviewed and analyzed by counsel not only before
exercising rights, responding to requests or undertaking actions,
but also proactively to make sure that the full benefit of the bargain
is being received, that opportunities bargained for are not being
missed (such as options on the tenant side by a failure to timely
exercise) and that each of the parties is, in fact, complying with
its obligations under the lease (How many letters of credit have expired
because the landlord did not follow up? How many tenants are overpaying
taxes or expenses on a net lease or for certain additional services because they
do not fully understand the applicable lease provision?).
Well before any expansion, extension, move or other
significant action is contemplated by a tenant, or a sale or refinancing
is contemplated by an owner, it is important to know what the status
of the lease obligations is not just generally, but in detail.
If you would like us to provide review and analysis
of a lease or a portfolio of leases, or would like more information
about these services, please contact us.
