Landlord Tenant Issues

We represent landlords and tenants in commercial and residential lease negotiations and disputes. It is important to have a well drafted lease which discusses the issues that can arise during the course of a tenancy. Critical issues that can be the source of problems between a lessor and lessee include:

• Allocation of Utilities. When units or premises are separately metered problems with allocation can be reduced. Unfortunately, however, sometimes a meter will cover both the units and the common area or more than one unit in which cases disputes can arise. A carefully drafted lease can avoid problems by allocating utility costs and anticipating problems that may arise in the future (such as an unanticipated overuse by a tenant).


• Assignment and Subleasing. The landlord and tenant must reach a clear agreement regarding the right of the tenant, at a later date to sublease or assign its lease. In a commercial context, this issue arises most often when a tenant wants to sell their business. Similarly, the tenant wants to make sure that a new landlord will honor the lease and be responsible for their security deposit. These clauses have become particularly important in light of the popularity of short-term rental websites which are encouraging tenants to sublease their units.
  


• Authority to Contract. If the landlord is represented by an agent or if the tenant is a corporation or a partnership, it is critical to make sure that the individuals signing the lease have the authority to do so.


• Condemnation. The condemnation clause deals with what happens in the event all or part of the premises is condemned. Most controversies arise from partial condemnation and whether the tenant is willing to accept a smaller premises.


• Damage and Destruction. What happens if there is a fire or some other accident that leaves the premises or the building in which it is located partially or fully destroyed? How will insurance proceeds be allocated? How long must the tenant wait before it can cancel the lease? How will the collection of rent be handled? All these questions must be addressed in the damage and destruction clause of the lease.


• Description of the Premises. Particularly in commercial leases and ground leases, it is critical to define exactly which areas are being rented and which areas constitute common areas. Even in residential leases, rights to storage areas and parking spaces need to be clearly designated to avoid disputes later.


• Guarantees. Often Landlords require personal guarantees in order to insure payment from entity Tenants such as corporations or limited liability companies. Tenants generally wish to reduce their personal liability and Landlords want security that the rent will be paid.


• Insurance and Indemnity. It is important for landlords and tenants to not only work with a real estate lawyer but a competent insurance agent to make sure that they have acquired adequate insurance. From the tenant’s perspective, the tenant wants to make sure they can afford the insurance that is required of them under the lease and that they are covered for any anticipated losses that may arise under the lease. Similarly, the landlord wants to make sure there are no gaps in coverage.


• Lease Term, Options and Starting and Ending Dates. Sometimes the term of a lease is not clear. The lease may not begin until a unit is ready for occupancy or it does not begin until construction is completed or a Certificate of Occupancy is issued. A poorly drafted lease can cause a myriad of legal problems for both the Landlord and the Tenant.


• Maintenance of the Property. A proper lease will allocate which party is responsible for maintaining the property which includes retrofitting the property according to local laws. Issues arise with respect to such issues as fire, earthquake and ADA retrofitting as well as who is responsible for repairing conditions that may be caused by mold or water intrusion.


• Options to Purchase. A lease/option agreement is a hybrid that combines both the issues of a lease and the issues of a proper purchase agreement. It is critical to set forth all the terms of the prospective purchase in order to have a clear and enforceable option agreement.


• Parking. Often an overlooked item in a lease, the parking clause is critical for businesses. If customers cannot park, they will not come to the business. Will the landlord become obligated to add parking or provide a valet in the event parking becomes a problem? If it is not in the lease, the landlord has no obligation to provide the tenant with adequate parking. Similarly, the landlord will have an interest in regulating parking to make sure that the tenant’s employees do not take up all the prime spaces that should be used by customers.


• Rent. The method of delivery, due date and amount of rent must be clear. In commercial leases there are various types of rent such as Base Rent, Percentage Rent, and what is often called “Additional Rent” which includes Common Area Maintenance Charges (often called CAM charges), taxes and insurance. There can be thousands of dollars worth of discrepancies between parties if these charges are not carefully defined. Indeed, rent clauses may well be one of the most problematic areas in landlord/tenant relations. It is important for the Landlord and Tenant to clearly communicate how these charges will work and what they will cost in advance.


• Required Disclosures. If a landlord is aware of certain facts about the property or its condition that would be material to a tenant, they must be disclosed. It is critical to have the assistance of an experienced real estate lawyer who can guide you in determining what types of conditions must be disclosed to a tenant prior to entering into a lease. There are a number of disclosures that are addressed by California law such as disclosures regarding the existence of asbestos, lead-based paint, mold, and natural hazards to name a few.


• Security Deposits. In residential leases, the law limits the amount of security that can be collected by a landlord. In commercial leases security deposits may increase as rent increases. How the security deposit will be held, under what conditions it can be used, and when it must be returned are all issues that must be discussed in the security deposit clause. For more information regarding security deposit issues, see Part 1 and Part 2 of the article on residential security deposits in the California Business Litigation Attorney Blog.
  


• Tenant Improvements. If the premises needs to be constructed prior to the lease a detailed “Work Letter” must be negotiated outlining time tables, how costs will be allocated and how the work will be performed. It is essential to have an experienced real estate attorney review any lease in which tenant improvements are involved.


• Use. Many disputes may arise from a poorly drafted use clause. If the use clause is drafted too narrowly it can prevent a business from growing or changing with the times. On the other hand, there may be “non-compete” clauses that prevent a tenant from engaging in certain types of businesses.