Who Cares Whose Lease Form Is Used?

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The party that chooses the form of lease has a negotiating advantage. But, that negotiating advantage actually begins before the initial lease draft is prepared because it is common that the party with the greater bargaining power in a particular situation gets to prepare that first draft.

The advantage comes in two ways. First, the drafting party is able to set the framework for discussion on each clause of the lease. The practical effect is that the non-drafting party measures its “success” by how much it can change the initial draft. Second, the party that prepares the initial draft essentially prepares a “quiz” for the non-drafting party – “What was left out?”

This remains true even if a stationery company’s or trade group’s “form” lease is used because it is hard, maybe impossible, to find a stationery company’s or trade group’s form lease that is not landlord-oriented. This is probably because this market sells its forms to many more landlords than tenants. Also, many form leases are promulgated by real estate brokerage organizations and industry trade associations, and their “market” is the landlord community. Virtually all of these leases are characterized by restrictions imposed on a tenant, clauses protective of landlords, clauses protective of brokers, and a shifting of risk to tenants.

So, why not use a form lease from a treatise? Fortunately, many bar associations and law publishers make available volumes of leasing forms of reasonable utility. Unfortunately, many are of marginal quality. That makes it worthwhile for a user, well in advance of the need to use any particular form, to investigate the range of available publications. It also gives the user the ability, while not under pressure, to carefully read and edit selected forms for later use. In many cases, the forms included in treatises and similar publications have been “lifted” from the contributor’s practice and no effort has been made to modernize, update or even proofread the form. And, as you might imagine, those forms have a tenant or landlord bias depending on the form selected or the nature of the contributor’s practice. Nonetheless, there are many available forms that make a strong starting point for anyone wishing to develop her or his own form. While there are many very good “formbooks” in the marketplace, at least one of them has integrated a “negotiating commentary” into many of its forms. CAUTION: HERE COMES A SHAMELESS PLUG. That volume is: The Commercial Lease Formbook – Expert Tools for Drafting and Negotiation, Second Edition, Ira Meislik and Dennis M. Horn, Editors, published by the Section of Real Property, Probate and Trust Law of the American Bar Association. Available HERE.

How about the “miracle drug,” the exalted “Conformed Lease.” That’s a form previously agreed-upon between a landlord and a tenant who have previously entered into a lease for one or more similar properties. This could mean merely the lease for the previous location or a lease that has been carefully crafted by the parties and has been used dozens of times before. The obvious advantage to using a “Conformed Lease” is that the parties save time and money because far less negotiating takes place and the tenant can take possession much sooner than if the parties began anew. Use of a “Conformed Lease,” however, doesn’t reduce the need for careful and thorough negotiation, especially when using the “last” lease. In every negotiation, compromises are made by each party, either for expediency or because, in a particular situation, one party or the other views a specific risk as acceptable. Those compromises may not be applicable within the next transaction, and you can be sure that no one has kept a record of what were those compromises. Landlords and tenants, when agreeing to use of a “Conformed Lease,” should not leave it unsaid that “there will be no slavish adherence to the form” when it comes to any such items.

In every case, regardless of the form that starts the lease negotiation process, there will be “Hidden Traps” or “Silent Issues.” The most difficult task in preparing or reviewing a lease draft (or a draft for any other kind of contract) is to identify missing items. There is no shortage of checklists available and no practitioner should be without a complete list. It is worthwhile to search treatises for a good starting point and to persistently update your own list as it is used. No lease review should be done without a checklist alongside the reviewer. Two truly superb “Silent Lease Issue” lists, as follows:

Landlord’s Checklist of Silent Lease Issues (Third Edition), by S.H. Spencer Compton and Joshua Stein, available by clicking HERE.

Tenant’s Checklist of Silent Lease Issues, (Third Edition), by S.H. Spencer Compton and Joshua Stein, available by clicking HERE.

[And, that’s a great introduction to Josh Stein’s fabulous website and over the top collections of fine, fine articles.]

Is it possible to strike a balance? There is an almost universal tendency for the drafting party to begin with a lease form highly favorable to the drafting party. In the uncommon “take it or leave it” situation, this might “work out pretty well.” More often, however, starting with a “take it or leave it” form measurably increases negotiating (legal) fees and delays the onset of rent payments or the commencement of business. Some of the most successful and fastest growing tenants and some of the most prominent landlords in the country appear to be coming to the conclusion that in is uneconomical, in the long run, to begin with obnoxious lease provisions that are always renegotiated in the course of negotiations with a desirable party, landlord or tenant, on the other side. In essence, many successful landlords and tenants have, and are creating, form leases that are akin to a universal “Conformed Lease,” i.e., one that should be mostly acceptable to the “other side” and one that is designed to lower transaction costs and negotiating delays.

Is this a solvable problem? Is there a “fair lease” from which to start? We recall a ditty from high school machine shop days. It went (something) like this:

“I thought I spied a gremlin a’messing my machine,

but when I went to clobber him, nowhere could he be seen.

Now maybe gremlins do exist, and maybe gremlins don’t,

but when it comes to finding one, I’m doggone sure I won’t.

The same might be said about “fair” leases.

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