Monday, September 27, 2010

A lease is just a lease? Yeah, right.

This is a story of knowing your client.  Here's why.

I love it when people -- usually ones not too experienced in the industry -- tell me, "Oh, leases are all pretty much the same. You have a landlord, a tenant, a building and a term.  Just plug in the magic words and off you go."

In a word, wrong.  In fact, this is wrong on so many levels that I felt I needed to write about it.

First of all, who is the tenant and what is the building?  Different buildings and different tenants require completely different types of leases.  Yes, some of the language can be the same but the needs are completely different between, for example, office and industrial and retail uses.

Here is just one example.  Most commercial leases contain a clause requiring the tenant to use and occupy the premises throughout the term of the lease.  Now, many of my landlord clients really do not give a hoot whether an office or industrial tenant actually uses the premises, so long as it keeps writing that rent check every month.  But retail?  BIG no-no.  And that is why so many retail leases have very heavily negotiated "go dark" clauses.  The reason?  Landlords want to make sure a retail space is full and vibrant and has foot traffic, and even more so if there is a percentage rent component to the deal.  Tenants, on the other hand, want flexibility in the event a particular location is not working out.  Another really important reason you want tenants up and running is to prevent violating any co-tenancy clauses.  But that is another time, another post.

There are exceptions to this, of course, which is why I said "most."  The moral of the story?  Any good real estate lawyer absolutely HAS to know his or her client.  Each one has different so-called "hot buttons."  We already mentioned one of many, many retail hot buttons.  Sometimes the hot button is environmental issues.  Other times it is parking.  Often opportunistic investors concentrate on clauses such as the estoppel and SNDA sections that some other clients don't even think about much.  Why? Because they are thinking ahead to refinancing or sale.  Issues can be building specific, based on past problems the client has had to address or just a client's own personal preferences.

Furthermore, each lease has a certain objective, which may lead to negotiating or even drafting a lease one way or another.  I'm not going to elaborate on that there, but it is important to remember, as a good real estate lawyer can help a client work through those issues and turn a proposed lease into reality faster.

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