Te nant s Checklist of Sile nt Lease Issues, Se cond Edition (Part 1) S.H. Spe nce r Co m p ton and Joshua Ste in Silence is g old en b ut not necessarily in a lea se. S.H. Spence r Compton is vice pr eside n t and special counsel at Fir st Amer ican Tit l e In s ur ance Company of New Yor k in New Yor k Cit y. Joshua Stein is a r eal est at e and f in ance par t ner at Lat h am & Wat kin s, a member of t he Amer ican Col l e ge of Re al Est at e Lawye r s, and t he aut hor of A Pr act ical Guide t o Re al Est at e Pr act ice (ALI-ABA 2001). He is Secr et ar y of t he New Yor k St at e Bar Associat ion (NYSBA) Re al Pr oper t y Law Sect ion. Ear l ie r ver sion s of t his checkl ist f ir st appear ed in t he NYSBA Real Property Law Journal in 1999 and again in 2002, 27 N.Y. Re al Pr op. L. J. 123 (1999) and 30 N.Y. Re al Pr op. L. J. 184 (2002). Th e checkl ist was conceive d, in it iat ed, and edit e d by Joshua St ein. Ot h e r member s of t he Te n ant s Sil en t Le ase Is s ue s Subcommit t e e in cl uded David Badain, Joel Bin st ok, Har ve y Bon e par t h, Mor de cai Br aunst ein, Robe r t Br in g, Phil ip Br ody, St eve n Coh e n, Nancy Con n e r y, Kat h l e e n Cook, Samuel Gil be r t, Hol l y Gl adst one, Bar r y Gol dbe r g, Gar y Goodman, James Gr os s man, Andr ew Her z, Jonat han Hof f man, Gar y Kah n, Lawr en ce Kobr in, Andr ew Lan ce, Br uce Le uzzi, Be n j amin Mah l e r, Me l vyn Mit zner, John Ol e r, Huck Qavan augh, Robe r t Re ichman, Rh on da Schwar t z, Robe r t Sh ansky, Kar e n Sh er man, Bar r y Sh imkin, David Te l l, Mich ael Ut evsky, Wil l iam Vie t s, Be n j amin We in st ock, and Al l en Wie de r. Th e checkl ist does not r epr esent a posit ion st at ement or r ecommendat ion by t he publ ish e r or by t he New Yor k St at e Bar Associat ion or it s Re al Pr oper t y Law Sect ion, Comme r cial Le asin g Commit t e e, or any of t heir subcommit t e e s, or any or ganizat ion wit h wh ich any aut hor or ot her subcommit t e e member is af f il iat ed. If you have suggest ion s f or t his checkl ist or woul d l ike t o r epr in t it, pl ease send e-mail t o joshua.stein@lw.com or shcompton@firstam.com. Copyr igh t 2003 New Yor k St at e Bar Associat ion. WHEN A PROSPECTIVE TENAN T asks you t o r evie w and negot iat e a l ease, you wil l usual l y want t o t hin k about at l east t wo ver y dif f e r e n t t ype s of issue s. Fir st, you wil l deal wit h issue s t hat t he expr e s s t er ms of t he l ease suggest. For exampl e, you may ask f or l onger not ice per iods an d t ime l imit s, t he oppor t unit y t o cur e def aul t s, r easonabl eness as a way t o handl e any numb e r of issue s, a nar r owing of any open-e n d e d t e n a n t obl igat ion s or l andl or d dis cr e t ion, and f l exibil it y on use and t r ansf er s. You wil l al so dema n d absol ut e cl ar it y r egar din g al l mo n e t a r y and ot her sign if ican t obl igat ion s, del et ion of in appr opr iat e or exce s s ive obl igat ion s and r est r ict ion s, and cor r ect ion of er r or s and in t e r n al in con sis t e n cie s. Fin al l y, you wil l r espond t o any ot her is s ue s t hat j ump out based on your r evie w of t he wor ds in t he l ease.
To ide n t if y issue s l ike t hese, you wil l need t o r ead t he pr oposed l ease and make comme n t s based on your expe r ie n ce, your knowl edge, and t he t enant s specif ic needs. It is a r eact ive pr ocess t hat st ar t s wit h t he wor ds of t he l ease. Second, you may want t o ide n t if y and deal wit h is s ue s t hat a l andl or d s t ypical st andar d l ease does not me n t ion at al l, but t hat may nonet hel ess be impor t an t t o your cl ie n t. Th e s e ar e t he sil e n t issue s in any l ease. Un l ike t he f ir s t cat egor y of issue s, t he sil e n t issue s ar e not necessar il y easy t o ide n t if y, because not hin g in t he l andl or d s st andar d l ease f or m woul d r emin d you of t hem. GENESIS OF THE CHECKLIST In 1999 and 2000, a subcommit t e e of t he Comme r c ial Le as in g Commit t e e of t he Ne w Yor k St at e Bar As s o c iat ion Re al Pr oper t y Law Sect ion devel oped and publ is h e d a checkl is t of sil e n t l ease issue s f or at t or neys who r epr esent comme r c ial space t enant s. Th at or igin al checkl is t was r epubl is h e d in t his publ icat ion an d el sewher e and dr ew man y comme n t s and r esponses f r om r eader s. Bas e d on t hose comme n t s, f ur t her t hought, subsequent expe r ie n ce, and f ur t her r evie w by me mb e r s of t he subcommit t e e, t he subcommit t e e h as now updat ed and expan de d t he Te n an t s Ch e ckl is t of Sil e n t Le as e Is s u e s and is pl eased t o of f er a second edit ion. Th e or igin al sil e n t l ease issue s checkl is t pr oj ect gr ew t o cover ot her issue s (n ot j ust so- cal l ed sil e n t issue s ) t hat a t enant s c o u n s e l may want t o r ais e in negot iat in g a l ease. Re min de r s wer e al so added f or some, but not al l, due dil ige n ce a t enant migh t want t o under t ake in t he l easin g pr ocess. Th is second edit ion of t he checkl is t con t in ue s t hat appr oach. Th is checkl is t of sil e n t l ease issue s me n t ion s each issue onl y on ce, even if it migh t r easonabl y bel ong under mor e t han one headin g. Even wher e an issue in one sect ion r el at es cl osel y t o some ot her is s ue some wher e el se, t he checkl is t never pr ovide s a cr oss r ef er ence. Th e checkl is t cover s mos t issue s al phabet ical l y, which make s no l ogical sense at al l but r e-e mph as ize s t he impor t an ce of conside r in g t h e checkl is t as an in t e gr at e d whol e. An y user of t his checkl is t s h oul d r ead it f r om begin n in g t o end. WHAT THIS CHECKLIST IS AND DOES Th is checkl is t dis cus s e s a t r eme n d o u s r ange of issue s, r epr esent in g or at l east t ouchin g on al mo s t ever y possibl e issue or event t hat coul d ar is e or occur when t wo par t ie s have pot ent ial l y conf l ict in g in t e r e st s in t he same r eal pr oper t y over a ver y l ong t ime. A l ease amo u n t s t o a pr ivat e st at ut e. Un l ike a l egis l at ive st at ut e, t hough, t his pr ivat e st at ut e cannot be changed by eit h e r par t y t hat mus t l ive wit h it un l e s s t hat par t y can per suade t he ot her par t y t o agr ee t o a change. A l ease needs t o be r igh t t he f ir s t t ime. Be f or e emb a r k in g upon t he r el at ion s h ip t hat t his s t at ut e (t h e l ease) wil l gover n, each par t y has an oppor t unit y t o shape t he st at ut e t hat wil l gover n t he r el at ion s h ip. Th is checkl is t shoul d hel p a t enant and it s counsel use t hat oppor t unit y.
Which Issues Should Yo u Ra ise? De pendin g on t he mar ke t, t he par t ie s, t he t r ansact ion, it s t imin g, t he scope and t er ms of your engageme n t, and any ot her cir cums t a n c e s, you may or may not choose t o r ais e issue s f r om t his checkl is t. Even if you do r ais e t hese issue s, you wil l not necessar il y pr evail on any of t hem. (But if you never even r ais e an issue, you cannot possibl y pr evail on it.) Th e f act t hat any par t icul ar l ease does not r ef l ect posit ion s s ugge s t e d her e does not necessar il y me an t hat t he t enant s counsel did a bad j ob. To t he cont r ar y, t o ser ve it s cl ie n t best, some t ime s t he t enant s counsel shoul d r ais e no issue s at al l and j ust get t he deal sign e d, or ide n t if y and r ais e issue s t hat ar e out side t his checkl is t. Con ver sel y, if t he t enant s busin e s s st r at egy is t o pr ol ong l ease negot iat ion s as much as possibl e an easy goal t o achie ve t h is ch e ckl is t of f er s pl ent y of hel p. Mo r e t han al mo s t any ot her cat egor y of r eal est at e negot iat ion s, l ease negot iat ion s can t ake as much or as l it t l e t ime as t he par t ie s want. For exampl e, t he def in it ion of oper at in g expe n s e s, in and of it se l f, can r ais e dozens of knot t y issue s t h at may amo u n t t o a r ein vent ion of cost account in g. If a t enant want s some ext r a t ime t o get it s ducks in a r ow bef or e it act ual l y st ar t s payin g r ent (or bef or e it st ar t s usin g up it s f r ee r ent per iod) f or new space, t he t enant may want t o dr ag out l ease negot iat ion s as much as possibl e. Is s ue s l ike t hose suggest ed her e can hel p t he t enant do exact l y t hat. In decidin g which issue s t o r ais e, a t enant may al so want t o t hin k ah e ad and assess how t hose issue s ar e l ike l y t o t ur n out once t he t enant r ais e s t hem. If a l ease is vague, in a l andl or d-o r ie n t e d mar ke t, t he t enant may pr ef er t hat vagueness and uncer t ain t y (an d t he l ike l ih ood of a t enant -o r ie n t e d j udge) over t he adver se cer t ain t y t hat migh t r esul t if t he t enant r ais e d an issue and t r ie d t o cl ar if y vague l anguage, and t he l andl or d cl ar if ie d it in a man n e r t hat benef it e d t he l andl or d. Th is dyn amic ar is e s whenever a l ease is vague on any issue. Wha t Types of Le a se s? Th is checkl is t appl ie s main l y t o subst ant ial comme r c ial space l eases, f or bot h r et ail and of f ice t enant s. Mo s t issue s her e wil l appl y t o some l e a s e s but not ot her s. You shoul d in t e r pr et al mo s t ever y it e m in t he checkl is t as if pr ef aced by t he caveat s: if appl icabl e, appr opr iat e, desir e d, and possibl e under t he cir cums t a n c e s, t akin g in t o account t he size and nat ur e of t he t r ansact ion, t he condit ion of t he mar ke t, t he t enant s busin e s s and ant icipat e d use of t he pr emis e s, t he needs and negot iat in g posit ion s of t he par t ie s, t he t enant s expe ct at ion s r e gar din g l ease negot iat ion s, t he t imin g, and al l ot her cir cums t a n c e s. Some it e ms on t he l is t ar e appr opr iat e onl y f or ver y l ar ge t enant s t hat migh t occupy al l or mos t of a l ar ge buil din g. If a sma l l e r t enant r ais e d some of t hese issue s, a l andl or d migh t r easonabl y r egar d t he t enant s r equest s as bizar r e.
Ce r t ain issue s in t his checkl is t wil l appl y onl y t o cer t ain t ype s of l eases. Th e checkl is t make s no ef f or t at al l t o expl ain which issue s appl y t o which l eases. Th e checkl is t al so make s no consis t e n t ef f or t t o suggest how a l andl or d or a cour t migh t r espond t o any l ease pr ovision s suggest ed her e. Be caus e of t hese l imit at ion s, t his checkl is t is suit e d mor e t o an expe r ie n ce d l ease negot iat or t han t o a novice. Even a novice, however, wil l f in d t his checkl is t usef ul. Al l user s shoul d use t his checkl is t pr udent l y and wit h good j udgme n t. Th e checkl is t does not conside r t r ipl e -n e t l eases, gr ound l eases, bondabl e l eases, syn t h e t ic l eases, buil d-t o -s u it l eases, or ot her special ize d l easin g t r ansact ion s. Th is checkl is t conside r s l ease negot iat ion s f r om t he t enant s per spect ive, and does not def in e a min imum st andar d of pr act ice. It is n ot exh aus t ive or compl e t e. It is j ust a r esour ce f or l easin g pr act it ion e r s n o one s smo k in g gun in any f ut ur e dis put e. It cr eat es no l egal dut ie s or obl igat ion s. Us e r s of t his checkl is t ar e caut ion e d n ot t o r el y on it in any way or f or any pur pose. Th e aut hor s do not pur por t t o est abl is h or def in e st andar d r equir e me n t s f or what any l e as e shoul d or shoul d not say, even t hough t his checkl is t s ome t ime s uses t he wor d shoul d f or ease of expos it ion. 1. Alte ra tions, Ge nera lly 1.1. Acceptable Contractors. At t a c h as an appendix a l is t of pr e-a ppr oved cont r act or s, ar chit e ct s, et c. If t he l andl or d has appr oval r igh t s, have t he l andl or d pr e-a ppr ove as man y name s as possibl e. 1.2. Consent Requirements. Th e l andl or d shoul d agr ee t o be r easonabl e about appr ovin g any non-s t r u c t u r a l t enant al t er at ion s. Pr ohibit t he l andl or d f r om r equir in g t he t enant t o make any changes in al t e r at ion s t hat woul d in cr e ase t heir cost, exce pt any changes necessar y because t he t enant s pl ans do not compl y wit h l aw. 1.3. When Consent Not Required. Set a t hr eshol d f or wor k t hat does not r equir e t he l andl or d s consent s uch as decor at ive or min or (l e ss t h an a st at ed amo u n t ) al t er at ion s or par t it ion wal l s. Ch an ge s in t he economy and wor k st r uct ur es me an t hat t enant s may want mor e f l e xibil it y t han in t he past t o r el ocat e par t it ion wal l s al mo s t at wil l. If t he t enant r egar ds it s space ar r angeme n t s, design s, and of f ice l ayout s as pr opr ie t ar y in f or ma t ion, t he t enant may want t he l andl or d t o l et t he t enant make any al t er at ion s l aw al l ows, wit h no need t o obt ain t he l andl or d s consent or even t o del ive r pl ans t o t he l andl or d. (Th e pr ecedin g suggest ion r ef l ect s concer ns t hat wer e f or t he mos t par t conf in e d t o dot com t enant s. Th e demis e of t he dot com t enant s may min imize t he l ike l ih ood t hat t his issue wil l be r el evant in f ut ur e l ease negot iat ion s, but some t enant s occas ion al l y ma y car e.) 1.4. Flexibility. How much f l exibil it y shoul d t he t enant have in choosin g it s ar chit e ct s, engin e e r s, ot her consul t ant s, and cont r act or s? Th e t e n an t wil l not want t o be l imit e d t o t he l andl or d s appr oved l is t.
1.5. Multiple Floors. A mul t i-f l oor t enant may want t he r igh t t o const r uct in t e r n al st air s, and dr il l t hr ough f l oor s f or cabl in g. Such a t enant may al so want t he r igh t t o use t he buil din g s in t e r n al f ir e s t air cas e s f or access bet ween f l oor s. Wh e r e t he l andl or d per mit s in t e r -f l o o r cut t hr ough f or a st air cas e, t he l andl or d wil l gener al l y r e quir e t he t enant t o r est or e, eit h e r specif ical l y or under a gener al al t er at ion r est or at ion cl ause. Th e t enant shoul d seek t o negat e t hat r equir e me n t. 1.6. Risers, Etc. Th e t enant may want t o use r is e r spaces, shaf t s, chamb e r s, and chases t o r un duct s, pipe s, wir es, and cabl es. Al t h o u g h t h e concept of l imit in g each t enant t o it s pr opor t ion at e shar e of t his s pace has a r in g of f air n e s s t o it, wil l t his me e t t he t enant s needs? Not if t he l andl or d s buil din g is in ade quat e (as a whol e) t o me e t t he needs of mode r n t enant s. Tr y t o have conduit s and r is e r s excl us ive l y al l ocat e d t o t he t enant, not shar ed. At a min imum, t r y t o cont r ol who el se may use t hem, and how. Pr ovision s concer nin g r is e r use may need coor din at ion wit h t hose concer nin g t el ecommu n icat ion s access. (Th e e n t ir e ar ea of t el ecommu n icat ion s is one wher e man y l andl or ds ign or e appl icabl e pr ovision s of f eder al l aw t hat man dat e f r ee access. In s t e a d, l andl or ds seek t o impos e r est r ict ion s and f ees t hat may s impl y be void.) 1.7. Limit Fees. If t he t enant agr ees t o r eimbur s e t he l andl or d f or f ees of it s ar chit e ct s, engin e e r s, or ot her consul t ant s in connect ion wit h t he l andl or d s appr oval of any al t er at ion s, t he t enant wil l want t o l imit or negot iat e t hose f ees. Mo r e gener al l y, assumin g t he t enant uses it s own ar chit e ct and t he t enant s ar chit e ct is compe t e n t and l ice n s e d, why shoul d t he t enant agr ee t o pay t hem at al l? 1.8. Time to Remove Liens. If t he t enant s wor k pr oduces l ie n s, t he t enant wil l want enough t ime t o r emo ve t hem, af t er t akin g in t o account pr ocedur al r equir e me n t s of appl icabl e l aw, and r el at ed del ays. Th e l an dl or d shoul d agr ee not t o pay any l ie n t hat t he t enant has bonded. 1.9. Use of Sidewalk. A gr ound f l oor t enant may want t he r igh t t o in st al l awnin gs, canopie s, and cr owd cont r ol bar r ie r s on t he side wal k. 1.10. Americans with Disabilities Act of 1990. Th e t enant shoul d have no dut y t o br in g any el eme n t s of t he exis t in g buil din g in t o ADA compl ian ce (e.g., el evat or but t ons), unl ess (pe r h aps) t he t enant act ual l y al t er s t hat par t icul ar el eme n t of t he buil din g. 1.11. Permits. Th e l andl or d shoul d agr ee t o cooper at e wit h t he t enant in t he pr ocess of appl yin g f or buil din g per mit s and ot her gover nme n t a l appr oval s f or t he t enant s wor k. 1.12. Right To Finance Alterations. Th e t enant may want t he r igh t t o f in an ce al t e r at ion s, per haps even on a secur ed or quasi-s e cur e d basis. Wh at cooper at ion wil l t he t enant need f r om t he l andl or d? Wh at docume n t s wil l t he t enant s l ender pr obabl y r equest? As k t he l andl or d t o assis t as needed. If t he l andl or d won t l et t he t enant gr ant l ie n s t o secur e equipme n t f in an cin g, per haps ask t he l andl or d t o pr ovide t he f in an cin g in st e ad, wit h r epayme n t buil t in t o t he r ent or docume n t e d