Page 24 —
COLORADO REAL ESTATE JOURNAL
— September 16-October 6, 2015
Law & Accounting
T
he lease. It’s such a seem-
ingly mundane docu-
ment, but as a legal pro-
fessional I cannot stress enough
the importance of a solid, written
agreement. The lease, in short, is
the “private law” to which the par-
ties – the landlord and the tenant
– agree. Congress spends months
and sometimes years debating and
settling federal law.Your leaseneed
not involve sucha longprocess, but
why settle for a lease that isn’t up to
par when it will govern your own
agreement and carry very impor-
tant legal ramifications?
Many of my clients are savvy
and understand the importance
of the lease document. Too many
times, however, I meet individu-
als who think they are lease mas-
ters without really considering the
important terms that need to be
included in the agreement. Even
worse, there are some individuals
I meet who have been told that a
commercial lease is the same as a
residential lease and the same con-
cerns and conditions apply.
I encourage you to put your own
lease knowledge to the test! Read
the following information to deter-
mine if youare truly a lease guruor
if your own knowledge base could
use a tune-up.
n
Lease term.
The need to nego-
tiate the duration of the lease term
is almost a no-brainer. Because this
requirement is so second nature,
it’s also one of the easiest to actu-
ally negotiate. The most important
itemstokeepinmindinvolvewhen
the termbegins and ends aswell as
the method by which the lease can
be renewed. In relation towhen the
lease will begin or end, go one step
further than most individuals and
time-stamp thedate (e.g., 12:01 a.m.
on 1/1/15 is better than simply
1/1/15). As far as renewal, also go
one step further and require writ-
ten notice mailed to a particular
contact address bya certain timeon
a certain date. (Such specific terms
are better than simply requiring a
phone call anytime before the end
of the lease term.) Specific terms
that build innotification and ample
time for a landlord to find a new
tenant can avoid a landlord losing
amonth or two of rent.
n
Rent.
The amount of money
that a tenant will pay is more than
just the landlord’s favorite part of
the lease. In addition to the lease
term, it’s also one of the most basic
requirements as well. Many land-
lords are worried about entering
into the relatively longer terms gen-
erally required by commercial cir-
cumstances because shorter terms
allow an opportunity to increase
rent if the prevailing rental rates
increase or the property’s value
increases. Of importance to land-
lords, a lease
can incorpo-
rate periodic
rental
rate
i n c r e a s e s ,
s ome t i me s
called escala-
tions, to avoid
this concern.
If such esca-
lations
are
included in the
document, for
both parties
(but for tenants
especially) it’s
important to carefully spell out the
circumstances where these escala-
tions can and will take place and
to understand precisely how such
escalations will be calculated and
implemented.
n
Security deposits.
Secu-
rity deposits, and the landlord’s
supposed failure to return them,
present some of the most fertile
grounds for disputes between
a former tenant and a landlord.
Clearly and simply documenting
the conditions under which a secu-
rity deposit, in part or in full, will
be returned or kept is an absolute
must in any lease. I also suggest
that both the landlord and tenant
carefully document the condition
of the premises both before and
after moving. A room-by-room
checklist that captures any damage
is a very useful tool, and in this day
of mobile phones it is incredibly
easy to document the premises’
conditionwith photographs.
n
Improvements and fix-
tures.
There are very important
legal ramifications depending on
whether a modification to a prop-
erty is an improvement or a fixture.
A complete article could be writ-
ten just on that one topic. But in
the context of a lease, it’s critical
to spell out clearly which party
will own the modification, pay for
its creation and installation, and
ultimately keep the modification
when the lease ends. A landlord,
generally speaking, will keep an
improvement while a tenant will
keep a fixture. And, yes, unless
the lease specifies otherwise, there
are certain circumstances where
the tenant pays for certain modi-
fications but a landlord can keep
them, so it’s important to spell out
these terms in a way that everyone
is happy and understands them
before the issue arises.
n
Signs.
Advertising can be criti-
cal for a business’ success and, as
with most real estate, location (of
signage) can be everything. I have
consulted with business owners
who are convinced they have a
draconian landlord because of a
request to stop work on a sign
or the location of an existing sign
needed to be changed. If a landlord
has very specific wishes concern-
ing the style or location of signs, it’s
critical that those terms be clearly
stated in the lease before work on
signage begins.
n
Maintenance.
The need to
clearly indicate the party respon-
sible for themaintenance of a prop-
erty absolutely needs to be clearly
spelled out in the lease. In circum-
stances where the burden will be
shared, such terms are all the more
necessary to clearly create the divi-
sion of responsibility. The biggest
concerns that I see raised involve
the HVAC system and snow/ice
removal (especially here in Colora-
do). Landlords and tenants would
both be well served to ensure that
the party responsible for these two
maintenance issues in particular is
clearly delineated in the lease.
I’m not sure if you noticed, but
there is an underlying theme to
each of these items: If there’s a pro-
vision that is important to you, it
should be included in the lease.
To that simple theme, I would add
that all terms should be custom-
tailored and very specific to your
individual situation.
In the context of commercial
leases, I am an advocate of avoid-
ing the cookie-cutter approach of
Internet-ready forms and highly
recommend a custom-drafted doc-
ument. Many clients are initially
concerned about additional fees for
a custom document, and under-
standably so. I always remind my
clients that once the initial drafting
is complete, these documents can
be easily modified for reuse – thus,
the cost is really negligible taken
over the life of a property.And all it
takes is the avoidance of one poten-
tially nasty legal issue for the value
of the document to become readily
apparent.
To conclude, there are many
other lease terms that are an abso-
lute must to protect your interests
and I haven’t touched on every-
thing in this primer. I hope that
you have read the information I’ve
shared above and thought to your-
self that this information is nothing
new. Even better, I hope that you
can think of one or two items that
you have included in your lease
that I haven’t touched on. If that
describes your situation, I think
you’re likely well on your way to
being a lease guru. If, however,
you review this information and
maybe after taking a look at your
own lease you decide that some of
these items aren’t discussed inyour
document with sufficient detail (or
at all), I highly recommend that
you speak to a licensed legal pro-
fessional concerningdraftinganew
lease.
s
Peter McFarland
Associate attorney,
Estill & Long LLC,
Denver
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