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Lease Legalese – Make Sure You Are Protected
Written By: a Houston based associate of an international law firm representing clients in a broad range of developments, financings, dispositions and acquisitions of a variety of commercial projects, including the sale, acquisition, leasing, financing and development of mixed-use, office, retail, industrial and energy facilities.
We lawyers often like to spend a majority of our time negotiating and worrying over lease provisions that rarely, if ever, come into play. Certain terms—like interruption of services, casualty and condemnation—may seem like they are written in a different language, often causing the average tenant or broker to glaze over them. But these sections are important to spend a little time on to ensure you as a tenant are adequately protected, especially in Houston where hurricane season is quickly approaching.
After weather events in Houston such as Tropical Storm Allison and Hurricane Ike, many tenants were left holding the bag due to poorly constructed lease provisions dealing with casualty and interruption of services, while other tenants that were well protected received day-for-day rent abatement until their premises were back up and running. Here are a few tips to keep in mind when working on these sections of your lease:
- Many small office leases simply say that the Landlord is not responsible for any interruption of services. But it is reasonable to negotiate for rent abatement after certain time has elapsed and services are not restored—i.e., after 5 consecutive business days, or 15 business days in any one calendar year. This should especially be true in the event Landlord causes the interruption.
- Similarly, in the event of a property casualty, make sure you as the tenant have a rent abatement right immediately for the portion of your Premises which is “untenantable” – or unuseful in its present state to the tenant. It is often also reasonable to negotiate for full rent abatement if more than a certain percentage of the Premises are “untenantable” (i.e., 40% or 50%, under the theory that at some point, if you cannot access half of your Premises, the unaffected portion is not usable either).
- In the event of a casualty, if the Landlord has a termination right and the Building cannot be rebuilt during a certain time frame, make sure the time frame for such termination is reasonable (i.e., 12 months may be reasonable, whereas three months just gives the Landlord a free out if he or she does not want to rebuild). You as the Tenant may also try to negotiate a termination right if the Premises are not restored after a certain time period.
- Add language whereby the Landlord cannot terminate your lease after a casualty unless he or she terminates all leases in the Building (or all leases in your elevator bank, etc.). Make sure you are not giving the Landlord the ability to pick and choose which leases he or she wants to get out of if there is another tenant willing to pay more for your space.
Those are just a few simple starting points to examine when considering commercial real estate to lease in Houston or any other city. Obviously there are plenty of other areas to dig down on. What are some other suggestions for dealing with interruption and casualty lease provisions?
