In my articles in the past newsletters I have discussed topics such as office vacancies and occupancy, valuing properties and key commercial terms to name a few. Most of the time I come up with the different subjects from questions from my clients. So suffice to say that is the same with this article. When leasing commercial real estate there are several steps that need to be taken to close a deal and one of the last steps is the leasing agreement. I often get questions on the meaning of the different clauses of the contract. With this article I will try to give a brief explanation or definition of the different areas of the office building lease contract.
- Parties: Identifies the parties of the agreement typically the Landlord/Lessor and Tenant/Lessee.
- Premises: Describes the area to be leased.
- Term: The time frame of the lease.
- Base Rental: The amount of the monthly rental.
- Additional Rent: Usually is monthly rental in addition to the monthly rental such as Common area maintenance, taxes, insurance, percentage rental, etc
- Services by Landlord: This area defines the services the Landlord provides in the lease.
- Repairs by Tenant: Defines the Tenants obligations and responsibilities for repairs under the lease.
- Alterations and Additions: A clause in the lease where the tenant cannot make any alteration of additions to the leased area without Landlord’s approval.
- Acceptance of Premises/Repairs By Landlord: Indicates that the Tenant accepts demised premises in its present condition and defines the repairs that the Landlord is responsible for under the lease.
- Termites, Rodents and Pests: This area outlines which party is responsible for pest control. Typically the Landlord is responsible for termites and other wood destroying insects and the Tenant is responsible for all other insects, rodents and pests.
- Release and Indemnity: This area of the lease is where the Tenant releases the Landlord and the Landlord’s representatives and their employees, agents and officers from liability for injury or damages occurred on the property and also from Tenant’s or its employees negligence during the lease.
- Tenant’s Liability Insurance: The paragraph defines the Tenant’s insurance obligations under the lease.
- Surrender of Premises: This area indicates the condition the Tenant must leave the premises upon the expiration of the lease agreement.
- Casualty: Causes beyond Landlord’s control and eminent domain. The area defines the conditions of the lease if the building is damaged by fire, flood, storm, etc., or if the property is condemned by eminent domain (taken for public use), at any time during the lease term.
- Taxes and Garbage: Outlines which party is obligated for the taxes and garbage during the lease term.
- Compliance with Law and Insurance Requirements: The area of the lease that states the Tenant will not use the premises that would be against any law, ordinance or regulations of the government and all governmental agencies. It also states the Tenant will not commit or permit acts that could violate the fire and casualty insurance on the property.
- Entry by Landlord: Allows the Landlord to enter the premises for inspection or to make repairs in the premises.
- Signs: Defines the rules and regulations on signage for the property.
- Lease Non-Assignable: States Tenant may not assign the agreement without Landlord approval.
- Tenant Holding Over: Defines the conditions of the lease if a tenant continues to occupy the premises after the lease expiration.
- Waiver of Homestead: In this section the Tenant waives its right to homestead.
- Default and Remedies: Defines all the defaults of the Tenant under the lease and the remedies the Landlord can take in case of default.
- Notices: This area is for the addresses of each party of the lease when notices or other correspondence are sent.
- Successors: This area defines that the agreement shall be binding to the respective successors, heirs or assigns.
- Agency and Agent’s Compensation: If an agent is involved in the lease, this area defines the agent’s compensation.
- Inability to Deliver Possession: Defines the obligations of both parties if the leased area is not available when the lease commences.
- Security Deposit: This area describes the amount of the security deposit for the lease.
- Rules and Regulations: This clause states the Tenant shall comply with the rules and regulations of the lease.
- Late Charges: States the amount of the late charge the Tenant must pay if the rent is not paid on time according to the lease terms.
- Attornment: This paragraph says that if the building is sold, the Tenant agrees to recognize any successor in title.
- Improvements by Landlord: The area outlines which improvements the Landlord agrees to make and is usually indicated in exhibits to the contract.
- Special Stipulations: This area is used to include any special language that is not found in the contract.
Since there are several different types of leases, i.e. shopping center, warehouse, free standing buildings, one will find some clauses of the lease different from the office use, but this article should at least explain some of the different portions of a lease. However, before entering into any kind of lease contract, I would recommend receiving advice from a seasoned real estate attorney.
Donnie Laurens
Commercial Real Estate Agent
Macon Commercial Office
478-746-9421