Beware Of Boilerplate: Sword Or Shield?

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There is no shortage of commentary and reference material covering the drafting and negotiating of a real property lease. As a result, it is tempting to try to cover more ground or to go further than others have gone when analyzing a lease’s provisions. Ruminations will make a deliberate effort not to succumb to that temptation.

The scope of today’s posting is to look at four “boilerplate” clauses in a typical lease. If we get a positive response, we may cover a few more clauses over time.

What, really, is “boilerplate”? The word’s common meaning is a provision that is ordinary, common, and by implication generally acceptable. In reality, there are very few, if any, such clauses in a form lease. They may be ordinary and common, but they aren’t necessarily generally acceptable – especially to a tenant. No bias is intended today. Nonetheless, it is impossible to be entirely balanced as between a landlord’s concerns and a tenant’s concerns. After all, pre-printed forms are designed for sale to landlords, not tenants, and most leases begin on landlord-generated forms.

It would be a significant omission to leave out the observation that the most frequently encountered “boilerplate” provision in a lease (or any other contract) is the “blank space” or “the provision that is ordinarily and commonly” left out of the document. By example, when the “form” lease does not require a landlord to maintain the property, provide services or carry insurance, that is, in effect, a boilerplate provision – ordinary and common, but significant by its omission.

Ruminations is making no attempt to be comprehensive or to transfer a lifetime of leasing experience to the reader. Most Ruminations readers have considerable experience and, collectively, our readers have far, far more experience (good and bad) than this writer or any single reader. Thus, humility is called for. Instead, the approach we’re taking today is a simple one. We’ve made fair use of a selected and limited number of provisions from a popular New Jersey pre-printed lease form. Then, we’ve made comments, mostly about the underlying principles behind the provisions. Hopefully, this will be somewhat refreshing because these provisions are so familiar to leasing practitioners, and it is common to gloss over them. And, in doing so, it is easy to lose sight about what they are really saying. Further, while there are many formulations of these ordinary and common clauses, each using different words, the underlying principles and issues are the same.

Today’s format is simple. First, we’ll present the “standard” lease provision. Then, we’ll address how its “boilerplate” nature may fail to address legitimate concerns of the parties, most often of the tenant, but significantly, also of the landlord.

RENT

BOILERPLATE: The Tenant agrees to pay $                      as rent, to be paid as follows: $                         per month, due on the       day of each month. The first payment of rent and any security deposit is due upon the signing of the Lease by the Tenant. The Tenant must pay a late charge of $        as additional rent for each payment that is more than 10 days late. This late charge is due with the monthly rent payment. The Tenant must also pay a fee of $25.00 as additional rent for any dishonored check.

COMMENT: Rent should be stated to be payable in advance, without notice, demand, set-off or abatement. It should also state where it is payable.

If the Lease doesn’t recite that rent is payable in advance, the common law would seem to say that periodic rent is payable at the end of the period, after the possession has been enjoyed.

Under common law, absent waiver, if a landlord does not make a demand for rent on the day rent is due, it can’t evict its tenant for non-payment. We doubt this rule has any remaining validity. Nonetheless, the reason one sees: “rent is payable without demand” is because this concern is being addressed. Also, the common law is that, absent agreement to the contrary, the landlord must pick up the rent at the leased premises.

Effectively, in residential lease disputes, a court can and will set an “equitable” rent under the doctrine that a residential tenant is entitled to habitable premises. And, if the premises aren’t habitable, the rent is too high and should be reduced until the premises are made habitable. There is no corresponding doctrine for commercial premises, even though the law is slowly, slowly, moving in the direction of incorporating a view that commercial premises must be free of physical defects that materially deprive a tenant of the benefit of its bargain. That having been said, adding that rent is to be paid without set-off or abatement should eliminate such a defense to a commercial eviction action based upon non-payment of rent. In jurisdictions with mandatory counterclaim rules, a tenant can still make a claim for damages in a collection action against it by its landlord.

Leaving a “blank” for inserting a late charge can tempt a landlord, especially one who has had bad tenant experiences, to insert a punitive amount. Take care, because if the stated amount is truly punitive, you shouldn’t expect it to be enforceable. The analysis for a residential lease is likely to be more in favor of the tenant than that for the tenant in a commercial lease. One appellate court expressed its uncertainty by pointing out that “[u]nlike residential tenancies, the terms of commercial leases are almost exclusively derived by market forces.” Generally, “a commercial landlord is free to negotiate with the tenant the terms of a lease, including ‘additional rent fees’ for late payment of rent.” To that court, this didn’t mean “that there need not be a nexus between the amount of the fee charged, and any additional reasonable administrative cost incurred by the landlord. A late fee provision in a commercial lease is, at its essence, a stipulated damages clause.” Consequently, a liquidated damages analysis can be expected in a contested matter, especially if the late fee asserted a grossly disproportionate one, such as one that compounds without rationale.

PURPOSE

BOILERPLATE:      To be used and occupied only and for no other purpose than           . The Tenant shall not, and will not allow others, to occupy or use the leased premises or any part thereof for any purposes other than as herein limited, nor for any purpose deemed unlawful, disreputable, or extra hazardous, on account of fire or other casualty.

COMMENT: While fundamentally a business issue, the basic tension is between a landlord’s desire to closely manage its property and a tenant’s desire to allow for later flexibility. From a tenant’s point of view, the gold standard is: “For any legal use.” Alternatively: “For any lawful retail use.” These would allow the tenant to change the nature of its (retail) business without hindrance by its landlord. They would also allow for maximum flexibility when assigning the lease or subletting the leased premises.

It is common to add: “and such other incidental uses as are commonly conducted in connection therewith” after the expressly stated use. Concededly, it is doubtful that a court would enforce a landlord’s barring of an activity logically related to the stated purpose, such as maintaining an office at the back of a store if it is only for that store’s administrative needs. On the other hand, a court might bar a retailer from using the back of its store as an administrative office for even a two-store chain or for storing goods for a remote location if the permitted use clause only allowed a particular type of retail store. While one could argue that the landlord is acting unreasonably in the example above, it would be more difficult to make the same argument when a landlord, to protect a jewelry store tenant, claims that a tenant that is only permitted to operate a nail salon cannot not sell jewelry on an incidental basis.

There is an interrelationship between the purpose clause in a lease and its assignment and subletting provisions. If the purpose or use clause is too restrictive, a landlord who approves, obligated or not, a particular lease assignment or a particular subletting of the leased premises is not obligated to consent to a change to the permitted use.

CONSENT

BOILERPLATE:        None. Blank.

COMMENT: Think broadly, the blank spaces in a lease also constitute “boilerplate.” So, a leasing attorney should think about replacing some of the “blank” boilerplate with boilerplate of her or his own. One such provision that might be added is: “Unless expressly stated otherwise in this Lease, no consent or approval required to be obtained shall be unreasonably withheld, delayed or conditioned.”

ALTERATIONS AND IMPROVEMENTS

BOILERPLATE:        No alterations, additions or improvements shall be made, and no climate regulating, air conditioning, cooling, heating or sprinkler systems, television or radio antennas, heavy equipment, apparatus and fixtures, shall be installed in or attached to the leased premises, without the written consent of the Landlord. Unless otherwise provided herein, all such alterations, etc., when made, installed in or attached to the said premises, shall belong to and become the property of the Landlord and shall be surrendered with the premises and as part thereof upon the expiration or sooner termination of this Lease, without hindrance, molestation or injury.

COMMENT: At common law, a tenant had no right to make any but the least permanent changes to its landlord’s property. Thus, any right that a tenant has to make alterations must derive from the lease. If a tenant has plans to initially adopt the leased premises for its use, the best time to get such approval is in connection with negotiating the lease. That’s when a landlord, hungry for a tenant and the tenant’s rent, will be most flexible.

The boilerplate Alterations and Improvements provision above sets no standards and give the tenant no permission whatsoever because, in effect, it reserves all of those issues for the landlord to later make the rules.

From a landlord’s point of view, it might be appealing to know that whatever the tenant installs becomes the landlord’s property and must remain when the tenant leaves, but not every addition to the leased premises is a benefit. Some additions are burdens. They need to be insured. They add to the tax assessment. They may be useless and costly to remove. Ask any landlord who “inherited” a bank vault or was left with the sloped floor of an obsolete movie theater. For those reasons, and to protect a landlord who might forget to “condition” its consent to a tenant’s alterations by requiring later removal of some elements, to reserve, in the lease, the right to decide what stays and what goes when the lease expires or is otherwise terminated.

Readers, if you’d like to see Ruminations cover more such “boilerplate” clauses in the future, let us know. Though we think this is pretty basic material, we’re not sure how our readers feel. And, every time we look at these kinds of clauses and really dig in, instead of going on “auto-pilot,” we see something we had never seen before.

 

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Comments

  1. Hello, Ira.

    Yes, please opine further on those costs that should reasonably be included as operating expenses (and are subject to reimbursement by tenants), what degree of repair constitutes a capital improvement, what constitutes a trade fixture (and can be removed), the amount property managers may charge for their services (and how increases in these amounts can be capped), and the tenant’s obligation to repair HVAC systems, electrical, plumbing, roofs, structural elements, and the like.

    All my best,
    Stephen A. Cross, CCIM

  2. I enjoy reading a solid perspective about issues that “everyone” believes is some kind of standard. From my view point, keep it up and look forward to reading additional material in the future

  3. matthew davis says:

    I enjoyed this article and would like to see more articles like it in the future.

  4. Ira, yes, please continue with your boilerplate clauses. Always good to review contract clauses and reasons/intent/material
    behind the clause.

    Best regards, Bruce Isaac, SIOR, CCIM

  5. Ira.

    As usual, you have well-illuminated challenges we all face with commercial lease concepts. Those who bemoan long and detailed leases have likely never been bitten by the behavior (or non-behavior) of a landlord (or, as the case may be, of a tenant) as a result of a lease provision that insufficiently addressed a particular issue. The devil IS in the details. And those who wish to keep lease documentation “simple” may end up on the wrong end of the stick when an action (or inaction) by the other party leads to unintended consequences.

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