Key Provisions in a Commercial Lease – Part II
As discussed in Part I of this series, there are several key provisions that should be given careful consideration by both landlords and tenants in negotiating a commercial lease. Although the terms should be tailored to your specific lease, premise and agreement, here are some key lease provisions in addition to those discussed in Part I that merit consideration in negotiating and drafting a commercial lease:
- Assignment/Subletting. Assignment and subleasing are events that may not occur until the future, if at all. So why is it important to worry about something that may not happen for a while, or ever, when you are negotiating a lease? From a tenant’s perspective, these rights are critical to provide tenants with flexibility and options in the event their business grows, downsizes, changes, or is later sold during the lease term. From a landlord’s perspective, it is essential to negotiate language that restricts the tenant’s rights to transfer without the landlord’s prior written consent or conditions which must be established and satisfied with respect to the proposed future tenant. Of course, with checks, there should be balances. Thus, to avoid potential future disputes regarding a landlord unreasonably restricting a tenant’s ability to assign/sublease, a tenant may negotiate language that prevents a landlord from unreasonably withholding, conditioning, or delaying its consent.
- Indemnification. The indemnity provision is a risk-shifting mechanism in which one party (the indemnitor) becomes responsible for any losses incurred by the other party (the indemnitee). Typically, indemnity provisions in commercial leases weigh heavily in favor of the landlord. However, certain language is required under Florida law for such provisions to be enforceable, including, for example, when the landlord is seeking indemnity for losses resulting from its own acts. A tenant may seek to be indemnified against third-party claims, and for the landlord to be financially responsible, when the third-party’s injuries or losses result from matters within the landlord’s exclusive responsibility or control under the lease, or due to intentional or grossly negligent acts by the landlord. Indemnity obligations are often the subject of dispute and litigation when not carefully crafted properly, which is why a party seeking such protection should consult with an attorney experienced in drafting, negotiating, and litigating these provisions.
- Default and Remedies. It is critical to know your rights when the other party defaults on their obligations, as well as to clearly set forth any procedures in the event of default. The lease should specify what events constitute a default by each party, whether notice or opportunity to cure the default within a specified time period is required to be given to the defaulting party, and what remedies are available in the event of a default.
- Dispute Resolution and Attorney’s Fees. Does the lease include a mandatory pre-suit mediation requirement as a condition to filing a lawsuit? Is there an arbitration provision, and if so, is it binding or not? What State, County or venue are you able to bring a lawsuit? The type of proceeding and where it can be instituted should be specifically negotiated and stated. Under Florida law, all parties pay their own attorneys’ fees unless stated otherwise in a contract or statute. Thus, a commercial lease should include a provision that the prevailing party in litigation is entitled recover its attorneys’ fees and litigation costs from the losing party.
Counsel experienced in drafting, negotiating, and litigating commercial lease contracts should be consulted to review and negotiate such critical lease provisions to attempt to avoid potential consequences and disputes that may arise when these provisions are not carefully drafted or are simply not included. Please contact me at email@example.com for more information or to schedule a consultation regarding negotiating and litigating commercial leases.