In the second installment of “An Ounce of Prevention for the Commercial Landlord” series, Kevin J. Mahoney discusses other important lease terms which should be considered and negotiated at the initiation of the landlord/tenant relationship.
It is often prudent to include language in the lease detailing any contingencies which must be satisfied in order for the lease to become operable. For example, the requirement that the Tenant obtain financing, zoning approval, building/occupancy permits or liquor licenses are common requirements of tenants that could derail the operation of a business if they are not obtained. Specifically detailing the nature of the contingencies which must be met in a fixed timeframe for satisfying the contingencies will work to protect both parties.
Tenants often seek as broad a permitted use as possible to allow for maximum flexibility if the nature of their business or the desires of the customers were to change over time. Landlords, on the other hand, may wish to confine a tenant to particular uses so as to control the mix of a commercial facility. On the extreme end, tenants may request and landlords may allow an “exclusive” for a particular use. The specific extent of the exclusive must be laid out in great detail to avoid future conflicts. For example, an exclusive for an Italian restaurant may not prohibit the sale of pizzas and submarine sandwiches. The exclusive use in a center could also be limited in time.
Insurance and Indemnities
It is imperative that Landlords specifically outline the required insurance that the Tenant must maintain during the course of the tenancy. In addition, the Tenant should be required to list the Landlord as an “additional insured” under any policy and provide the Landlord, upon request, with copies of the policy to confirm the named insureds and limits of coverage. Landlord should also obtain indemnification language from the Tenant in the event of any claims being asserted against the Landlord.
The coverage that is required for each Tenant should vary depending on the nature of the proposed use. For example, a dry cleaning establishment or a restaurant may require enhanced insurance coverage to protect against claims which may be asserted as a result of the nature of the use. Some policies are currently carving out exceptions for specific types of risks. For example, a policy on its face may carry coverage of one million dollars for general negligence but may limit the coverage to a much smaller amount for environmental claims.