Lease Provisions That Don’t Belong in a Lease

Are we junking up our leases and other agreements with provisions that may not even be remotely related to the real deal? Today, we’ll beat up on the creeping incursion of confidentiality provisions in ordinary lease forms. But, that’s only a poster child to argue how far off the beaten trail we’ve headed.

The thought here at Ruminations was to post another installment in the ongoing exclusive use discussion, but an excellent program at last week’s American Bar Association (ABA) Real Property, Trust and Estate (RPTE) Spring Symposia got these juices flowing.

First, an aside, but an important one. If you are a real estate attorney and don’t belong to the ABA-RPTE, you are really, really missing out. You are missing out on empowering CLE and networking. You are missing the free information and you are missing out on being connected to others like you who can help you in your everyday practice. Simply speaking, you aren’t connected.

Back to the subject at hand – the program was called: “When the Pressure Builds, Will the Boiler(plate) Explode.” Deborah J. Moench of Sher Garner Cahill et als., Heather B. McGowan of Stone Pigman Walther Wittmann, and Marianne G. Sorensen of Jones Waldo led the charge. When they got to a discussion of the purported “boilerplate” confidentiality provision of a lease, the discussion got heated. Yes, the pressure built. The language of the provision may have been “boilerplate,” but the presence of the provision itself – certainly wasn’t “boilerplate” (at least not to this writer).

A provision like this one isn’t something that clearly is wanted by both parties such as would be a provision setting forth the rent or spelling out the length of the term or allocating maintenance responsibilities. It isn’t one that is intrinsically related to the real property such as subordination obligations, quiet enjoyment, insurance or damage. A confidentiality provision deals with non-real estate matters – personal matters and proclivities. One might even suspect that the “personal” matter has nothing to do with what bothers the landlord or the tenant, but really comes out of head of the draftsperson, usually an attorney, who created or modified a form document. For one, when it shows up in a form lease, that’s most often the landlord’s form lease. Secondly, the provision often mimics the text of a merger and acquisition (M&A) agreement, so broad as to resemble the path a scrambling herd of elephants leaves behind. It doesn’t target a particular concern such as harmful disclosure of the rent, but almost always goes to every single aspect of the lease and the transactions leading to the lease.

Ruminations has two objections to this trend. For one, simply speaking, these far-from-central provisions just plainly and simply junk up lease negotiations. They are time wasting distractions. It is the rare lease that won’t get signed when the non-proposing party to the lease says – NO, we won’t accept anything of the sort in the lease. A lease is about possession and paying for possession. Millions of leases worked just fine before the ease of cut and paste stretched 15-20 page leases into 100 page leases.

The second point is that the information in a lease belongs equally to both parties. It isn’t the proprietary information of one party being shared with another. This isn’t a “we’ll let you look at our confidential information, but you have to keep it to yourself” situation. That’s an M&A deal, not a completed lease. Look, if there is a legitimate interest to be protected, then an agreement as to that point is perfectly fine. For example, a tenant may not want it known that it is opening at a particular location until it publically announces the opening. That may be to protect employee relations or as part of a marketing plan, but it makes sense. If that were on the table, then the landlord could respond by saying OK or by working out a compromise that would allow it to use the upcoming occupancy as a selling point to get other tenants to show interest in the same property. You don’t need an omnibus provision in a form lease for that.

Before anyone jumps up and down yelling, what about disclosing the “rent,” we’ll address that. First, there are no secrets. The brokers will disclose the rent and you’ll never figure out how that happened. Go to CoStar. You’ll see the rent right there. More importantly, each party “owns” that information and each party has legitimate reasons to share that information with others. Readers will say “yes,” but we’ve carved out exceptions. Ruminations would respond – don’t carve out exceptions, list the people to whom you don’t want the information to go. If you take that approach, you’ll probably realize that for every person or entity on the “don’t tell” list there are circumstances when a party will have a legitimate business reason for disclosure. If you go through that process and some person or entity “survives” the list-paring process and there is a legitimate reason to have confidentiality at all, then write the provision for that purpose.

One of the comments made at the Symposia program indicated awareness of a lease that barred any other attorney in the tenant’s law firm from disclosing the terms of the lease to any other attorney in the firm because the landlord felt it had given the tenant an extraordinary lease and didn’t want anyone else to be aware of its “vulnerabilities.” What ever happened to the “Just say No” campaign spearhead by First Lady Nancy Reagan? You don’t have to agree to any lease terms if you don’t want the lease. And, that doesn’t even touch on a discussion of the possible attorney ethics conflict facing an attorney who advises her or his own client as to whether the client should agree to such a provision. We’re not even thinking of the potential benefit to the negotiating attorney of being the only one in the firm who should do leases with that landlord on the other side, to the detriment of the other attorneys in the firm.

You can rightly assume that the foregoing represents a tempered reaction to the notion that a confidentiality provision should be “boilerplate” in a lease. That restraint inhibits this ruminator from giving examples of other misplaced lease (or other agreement) provisions, but it shouldn’t stop any reader from chiming in by adding a comment at www.retailrealestatelaw.com.