Leases: A Guide for Landlords and Property Owners

Posted almost 4 years ago. Applies to Missouri, 1 helpful vote

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1

Use Limitations, Exclusive Use Provisions and Maintenance Obligations

While the intended use of the property has undoubtedly been considered well in advance of the signing of the lease agreement, it is essential that a tenant negotiate sufficiently broad limitations and inclusive language with respect to any use limitations on the premises. Due to assumptions, prior informal conversations and failure to consider potential ramifications, a tenant may overlook this important portion of any lease. Additionally, a tenant must be aware of neighboring locations within the same shopping center or similar environment which would directly compete with the tenant's business. When possible, a provision should be included barring other similar businesses that would compete with the tenant. Finally, a tenant must demand clearly defined maintenance and repair obligations.

2

Non-Rent Financial Obligations

Most lease agreements include financial obligations of the tenant in addition to simple rent payments. These may include shared utilities, property taxes, common area maintenance (CAM) expenses, insurance premiums and a variety of other case-specific fees and expenses. A tenant must be sure to adhere to the following guidelines with respect to all such financial obligations: (1) demand clarity in lease provisions, (2) demand sufficient documentation of such expenses, (3) understand ramifications of default.

3

Option to Extend the Term of the Lease

While a tenant must be careful to commit to an overly extensive term to the lease (i.e. too long), it also has an interest in securing its location and preventing an unwanted move of its business. An ideal lease term would be relatively short (2-5 years) with multiple options to extend the lease. Such an arrangement allows a tenant maximum flexibility to expand to new space if needed or to remain at the leased location for a longer period of time. The following matters should be squarely addressed in any lease extension provisions: (1) No Changes in Any Lease Terms. Any extension of the lease should not change any non- monetary obligations. The lease should continue on precisely the same terms, except with respect to rent and similar payments. (2) Applicable Rental Increase. A lease that includes options to extend the term of the lease should clearly state the amount of the rent to be charged during any extended period. Increases between rental terms should not typical

4

Assignment and Subletting

While the initial term of the lease typically represents the anticipated needs of a commercial tenant, most business owners understand the need for flexibility. In order to avoid the unwanted position of being 'stuck' in a lease, a careful tenant will be sure to reserve and retain its ability to assign its interest in the lease or sublease the premises. Landlords often want to limit or prohibit subleasing and assignment, so this represents a key area of negotiation. A well-advised tenant will be sure to include the following provisions with respect to assignment and subleasing: (1) general right of tenant to assign or sublet the property, (2) a limitation of landlord discretion regarding sub-tenants or assignees, and (3) limitations on tenant liability after assignment or subletting.

5

Sale of the Property During the Lease Term

Most tenants are aware of the possibility that the owner of the property will sell the property. A tenant must be sure to secure its right to lease and use the property in the event of a sale of the property. Similarly, a landlord will want to bind the tenant to its obligations in the event of a sale of the property. A landlord will additionally want to secure related rights and assurances in connection with any sale of the property.

Additional Resources

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