Commercial Lease Negotiation Client PLP Law

There is No Such Thing as Boilerplate Language in Commercial Real Estate Agreements

As we start work in 2019 in earnest, the commercial leasing market remains very active. We find ourselves representing a number of commercial landlords and tenants in connection with long-term commercial leases.  One area in which we are adding great value is in the examination of “boilerplate language” within a proposed agreement that actually needs customization to protect our clients’ interests.

Great Commercial Lease Agreements Contain No Boilerplate

Most recently we represented a well-established auto body shop that sold its business to a national auto body and collision repair chain. As part of that transaction, the new owners leased the building that our client, the seller, owned to become the client’s tenant.  This transformed our client from a business owner into a commercial landlord. The commercial lease was for 10 years with a 5-year option, triple net, and the tenant committed to significant tenant improvements consistent with its business model and market identification.  The client/landlord retained certain occupancy rights along with the business transition, and agreed to pay for certain tenant improvements as well.

When negotiating commercial leases such as this on behalf of either the landlord or the tenant, it is critical that that the details of the lease language be tailored to the specific transaction.  The tendency to gloss over the “boilerplate” language can be a critical mistake.  In this particular transaction, we needed to draft custom clauses due to the unique nature of the transaction; however the “boilerplate” needed revisions as well, which is often overlooked.  Some items that we customized:

  • It was important to clarify what is meant by “triple-net”, as this is not defined anywhere and means different things to different people.
  • We had to make sure which party is responsible for taxes, insurance, maintenance , repairs and replacements, among other things. This is critical and should be clearly stated in the commercial lease with understandable language drafted by experienced counsel.
  • It was also critical from the tenant’s standpoint that we included a “due diligence “ contingency period to make sure that the tenant’s use is permitted by local zoning laws and that its contemplated tenant improvements are feasible and consistent with the landlord’s  expectations, all before committing to the lease.

It this case, the value of the commercial lease over the term was approximately $3,000,000, a significant commitment for the tenant to make.  While real estate agents and property managers are professionals in their field, there is no substitute for advice of legal counsel experienced in commercial real estate transactions when it comes to the final drafting of the lease language to protect the client’s interests.  Many of our commercial leasing clients are referred by commercial real estate brokers and property manager professionals who understand that an experienced commercial real estate attorney is the best way to protect their client’s interests and, equally, to shield these professionals themselves from liability for the unauthorized practice of law.

Advice from California Commercial Real Estate Law Specialists

This blog is general in nature and not meant to cover any particular transaction. Real estate agreements should be reviewed by a real estate attorney on a case-by-case basis to determine the legal and business risks involved in the proposed arrangement. Contact us to discuss particular cases you may be considering or pursuing.