In 21 years of tenant rep brokerage, I have had the privilege of working with some exceedingly smart real estate lawyers reviewing leases. [Tom Aggen, Linda Warren, Vytas Petrulis, to name a few.] I have learned so much from them and think it only fair that I in turn share that knowledge with you. So, bookmark this page and pull it up next time you need to review and redline an office lease. Hopefully, it will save you some time.
Entities and Definitions
When I receive a draft lease from a landlord, I start at the beginning, checking to ensure that the entity names are correct. This blog post goes into depth about why it’s important that the landlord entity matches the tax records for the building and how to make sure that is the case.
Next, in leases, the drafters will frequently define terms that will be used repeatedly within the document. Those terms will be capitalized. Make sure that there are no “defined terms” that are left undefined. You can do this quickly by comparing to a “definitions” page in the document or by searching the defined terms to find the corresponding definitions. If one does not appear, note it in your comments so that the drafting attorney can address.
Have the letter of intent or most recent proposal reflecting the terms to which the parties agreed handy while reviewing the lease. Check that each of the business terms, i.e. term length, rental rate (including any monthly or annual rent payment calculations), space size and location, rent escalations and operating expense base year, is thoroughly addressed and comports with the negotiated agreement.
This subject is a whole blog post unto itself and, unfortunately, not one that I have yet written. Suffice it to say that you must verify that the commencement date occurs when you bargained for it, whether that be a date certain or upon completion of improvements. Also ascertain who bears the risk for failure to deliver by the commencement date. You do not want your company or your client paying rent for space they are not using. Now is the time to make certain that does not happen.
In initial lease drafts, some landlords try to include every possible expense in the definition of Operating Expenses that may be passed through to tenants. Click here to download my “go to” list of operating expense exclusions that I add to every landlord-generated lease I review.
Insurance lease language can be full of landmines. This will help you avoid them.
Assignment and Sublease
All leases address the rights (or absence thereof) of the tenant to assign or sublease the leased space. This post details the five must-have lease terms relative to assignment and sublease.
If your lease anticipates any kind of construction in the premises prior to occupancy, it will include, at a minimum, a workletter detailing the parties’ respective obligations for construction of the space. Start by asking the person who will be responsible for overseeing the buildout on the tenant’s behalf to review it.
This blog post discusses all of the lease exhibits that should be included along with the workletter to ensure a smooth build out process. Also, make sure these five interior finishes are addressed to guarantee a Class A appearance. If you happen to be moving into a newly constructed building, this is a must read.
Expansion Rights and Rights of First Refusal
Always secure renewal rights and document them in the lease. This post explains why. In light of the new FASB regulations, read this to understand whether you want those renewal options to be at below-market rental rates. Also, if your renewal term creates a total lease term in excess of 20 years and your lease is in Alabama, you must read this.
If your new lease includes a right of first refusal, make sure your lease addresses these 5 things.
If you negotiated signage, make sure the lease addresses these issues.
When you finish the steps above and a thorough read-through of the lease, make sure that these No Go Lease Terms are not included in the draft lease. If they are, delete them. Read the blog post so that you understand why you need to do so and can convey that position to the landlord’s attorney.
Lastly, while I am an attorney, I am licensed under the California Bar and currently inactive and therefore cannot give legal advice and do not have malpractice insurance. Consequently, in a perfect world, you will go through the process I detail above and then send your redline to your actual lawyer who will then love you forever and sing your praises because you have saved him/her so much time.