Standard Terms is a myth

Posted On Tuesday, 29 November 2011 02:00 Published by eProp Commercial Property News
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So-called “standard terms” invariably mean pro-landlord terms because leases are drafted by landlords, and they’re naturally protecting their interests. You wouldn’t expect them to do otherwise

Michael Schirnig“Standard terms” can include budget-busters like operating expense loopholes, mark-ups on mark-ups, vague landlord performance standards and no audit rights.
According to Alchemy, don’t be pressured into accepting “standard terms.” A lease negotiation should be driven by your business objectives, not by a landlord’s desire to avoid risk (and pass it on to tenants like you). Your business needs must be translated into lease terms to be secured during negotiations.

Many corporate executives imagine they’ve locked in their biggest costs by shaking hands on the rental and tenant installation (TI) specifications.

However, the rest of the lease is loaded with costs. There are easily 8 or 9 significant non-rent costs in a typical lease, and it’s contrary to the interests of landlord brokers to identify these costs – or do anything else that might slow down or jeopardize a deal.

Lawyers don’t provide complete protection for tenants because they generally aren’t trained to analyse, nor have hands-on experience with, business issues which are responsible for so many excessive lease costs. Lawyers don’t claim to know how desirable or undesirable a landlord draft lease is from the standpoint of the current real estate market. Lawyers aren’t experts on the economics of building operating systems. Lawyers aren’t expected to know how various ways of charging for electricity will affect costs. Lawyers don’t audit landlord billings, so they don’t see whether particular landlords honour or evade lease terms – and what must be done about it. Lawyers typically review a lease without ever visiting the building, and many problems are missed because a lease didn’t address certain things which must be seen to be appreciated – or avoided, as the case may be.

Best advice is to get a property-savvy legal specialist, or alternately a tenant representative, to advise on the entire transaction and identify / manage potentially costly clauses out of the lease. Landlords don't like to make amendents - imagine their hassle related to managing hundreds of versions of their "standard" lease - but that's no reason not to push for commercially appropriate terms for your particular business.

And in this case your mother's advice applies - "Prevention" is very definitely better than "Cure" - so get everything reduced to writting before signing off on the lease and throwing yourself at the future mercies of the owner (or the next investor that buys the building).

Michael Schirnig, Alchemy Advisors

Last modified on Monday, 19 May 2014 15:43

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