When the courts interpret a commercial lease, they assume that both landlord and tenant are sophisticated businesspeople with equal negotiating leverage. Unlike residential tenancies, there are no legal presumptions to favor tenants in eviction cases. That makes the specific language of a commercial lease extremely important. Below, I list, and explain, what I see as the most important commercial lease provisions for landlords.
The ‘Must Haves’ for Landlords in a Commercial Lease:
Jury Trial Waiver
Every commercial lease should include a waiver of the tenant’s right to a jury trial. Jury trials are costly and time consuming. With the current backlog of cases in DC Superior Court, a jury trial could take well over a year. By comparison, a judge (bench) trial can be completed in a few months.
Fee shifting provisions are prohibited in residential, but not commercial leases. Requiring the tenant to pay the landlord‘s costs of litigation, including attorneys fees, insulates the landlord from potentially burdensome costs of enforcing the lease.
Notice To Quit Waiver
In both residential and commercial cases, waiver of a notice to quit for non-payment of rent is standard fare. However, for non economic breaches of the lease, a commercial lease may waive or modify the legal requirement for a 30 day notice and cure period. Frequently, in commercial leases, it makes practical sense to give the tenant some time to cure a violation, but less than 30 days.
Adequate Security Deposit
In residential leases, the security deposit is limited, by law, to an amount equal to one month’s rent. Not so in commercial leases. Since in nearly all cases it takes longer than 30 days to evict a non-compliant tenant, a landlord must require a security deposit sufficient to cover lost rent for the time it will take to evict.
Rent As A Separate Covenant
In residential leases, a tenant can withhold rent if the landlord does not perform its lease obligations, like repair of housing code violations. However, commercial landlords can stop this practice, by stating, in the lease, that the landlord’s obligations are separate and apart from the duty to pay rent.
Typically, commercial tenants are corporate entities, with only the business as an asset. This gives a landlord almost no protection beyond the security deposit, if the tenant cannot pat the rent. A personal guaranty, where the person(s) behind the tenant entity put their assets at stake in the event that the business can no longer meet its financial obligations.
Of course, this list only scratches the surface of what should be in a commercial lease. The stakes are high in commercial leasing since they can span more than a decade. Given this, and the typical complexity of the document, a landlord should not write a commercial lease without experienced counsel. If you a have questions about a commercial lease, please contact me or use my online scheduling tool to book an appointment.