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One Size Fits Some

January 23, 2009

You can find just about anything on the Internet, from a meatloaf recipe to a Yorkshire Terrier. The Internet can be a valuable tool or a source of entertainment, but it is a risky place to find a commercial lease form. “One Size Fits All” Lease forms may contain seemingly appropriate legalese like “subrogation” and “condition precedent,” but if you don’t know what those terms mean, you shouldn’t use them.

Generally, commercial leases are drafted by a landlord, and therefore any inconsistencies or ambiguities are construed against the landlord and settled in the tenant’s favor. The best way to protect yourself is to hire an attorney to draft the lease or at least review it before you sign it. If you decide not to get an attorney, there are five things a commercial landlord should consider including in a lease agreement to ensure its interests are protected.

First, Request a Personal Guarantee from a commercial tenant, rather than merely having the tenant sign the lease in their “official” capacity, such as an officer of a corporation or a member of an LLC.

Second, include an Acceleration Clause, which permits you to sue for all future rents if the tenant materially breaches the lease (but does not allow the landlord to demand that the tenant surrender possession for the balance of the term).

Third, include a lease covenant that allows a prevailing landlord to Recover Attorney’s Fees if a court determines that the tenant is in breach of the lease.

Fourth, require the tenant to carry Liability Insurance and indemnify the landlord.

Fifth, if the monthly rent is based on revenue generated from the tenant’s business, or if the monthly rent requires calculations for common area and maintenance costs, consider including a Liquidated Damages Clause, which sets forth a fixed measure of damages in the event the tenant materially breaches the lease.

As a final consideration, be aware that verbal discussions with a tenant generally are not binding. If a term is not in the lease, it’s not part of your agreement.