Should leases match the deal or should the deal match the lease? Where is Ruminations leading to today? How many times, too many we think, is a single lease form used as the basis for every deal coming out of the “shop”? And, does it seem that the most common lease form distorted, twisted, and reshaped for every deal began as one written for a multi-tenant property?
Today’s posting deals with another facet of what we wrote two weeks ago ̶ “Who does it? Who pays for it?” The only way to know is by reading the lease. Now, in a lease for a multi-tenanted property, the landlord does a lot, but the tenant pays for almost all of that. For example, the landlord mows the lawn and its tenants share the cost. At a single tenant property where the leased space includes the grounds as well, it is almost always the case that the tenant mows the lawn and pays directly for the mowing. The way you can tell who mows the lawn is to read the lease. The way you can tell who pays for the mowing is by reading the lease.
Wow, there wasn’t anything brilliant or revealing in what Ruminations just wrote. Yet, why do we see far too many proposed leases for the kind of single tenant situation we described, where those leases are based on the “landlord takes care of the common areas and tenant pays its proportionate share 100%) of the cost of doing so”? The lease lists all of the costs that the landlord will incur in maintaining “common areas,” but there are NO common areas. The lease makes frequent reference to “common areas,” but there are NO common areas. Also, multi-tenant lease forms handle insurance responsibilities in ways inconsistent with the nature of a single tenant occupancy. [Note: Ruminations strongly believes that landlords, as the property owner, should take responsibility for insuring their buildings and improvements. Their tenants should pay, but landlords should protect themselves by carrying the insurance.]
While there are no “absolutes,” there are strong customs. One of them is that a tenant assuming responsibility for the entire property is entitled to greater latitude in its use of the property than would a tenant at a multi-tenant property. If nothing else, the single tenant won’t be interfering with how other tenants use the property. So, why should a single tenant lease bar use of the sidewalks for displaying or selling merchandise? So long as such a tenant observes all laws, the single tenant, at least in that and similar regards, should have no restrictions that the property owner wouldn’t have if it, the property owner, were occupying the property. Basically, as long as the property’s collateral value isn’t challenged and the property is properly maintained, shouldn’t a tenant taking over all of the property owner’s responsibility (but for a very few) get the same broad use rights as it would have if its name were on the deed?
We’re not talking matters of rent or lease extension rights or other economic agreements. We are talking about the basic nature of a single tenant lease where the landlord expects to have no responsibility other than to deposit a check every month. So for all intents and purposes, for the length of the lease, this kind of tenant effectively “owns” the entire property. The leased space is its castle (et domus sua cuique est tutissimum refugium). [We owe Sir Edward Coke an apology because in our Latin parenthetical we are misappropriating his concept.] Even if the tenant’s rights are not that coextensive with that of the property’s owner, this approach should be the proper starting point for a single-tenant lease.
We could give a lot of examples of items that just plain don’t belong in a single tenant lease form, but commonly appear in a multi-tenant one, both simple and complicated ones. For the sake of brevity, here is a simple example. A landlord has a legitimate interest in seeing that property taxes are paid, and might want to do so itself and rebill the tenant, but a single tenant’s interest in the size of its tax bill should give it the right to initiate tax appeals. There may be a legitimate basis for a landlord to deny each of its 25 tenants at a property the right to initiate a tax appeal, but the interests of a tenant bearing the entire bill should override the legitimate, but limited, concerns a landlord might have over having someone else file an appeal.
Have you ever had a repetitive task where instead of spending 10 hours to “fix” something once and for all, you go ahead and spend 5 hours each and every time you need to get the job done and wind up making the same changes or whatever 10 times at 5 hours an “adventure.” That’s spending 50 hours instead of investing 10 hours. Admit it, you have – we all have. This is a matter of figuring out your personal time ROI – return on investment. Ten hours invested up front to do the right lease form saves 40 hours or more down the road. Even if you only have one “off-road” lease to do, it makes sense to invest some time to find (or to beg for) a good starting form instead of hacking up the wrong one. And that’s just for the time and anguish it will save. Think about your colleague on the other side and her or his time and anguish. It’s the courteous thing to do.
Basically, instead of starting with a multi-tenant lease form and then “subtracting,” Ruminations urges that a single tenant lease form be the starting point and that responsibilities be “added” to such a lease form based on the business deal. Taking such an approach saves time and money. It keeps the “heat” down. One way to graphically understand this is to picture the number of comments a tenant in a single tenant situation might make to a lease that started as a multi-tenant lease form as contrasted to what one would see to a single tenant form.
Speaking of “comments” to a proposed agreement, this week we saw one that asked that “(as defined later)” be changed to “(as defined below)” No further comment.