Tenant Leasing Illustrated
December 2016
Issue #59
Hello,

You often hear people say that rules are made to be broken. That certainly seems to be "the rule" in 2016. But violating the rules and regulations under a commercial lease can lead to a host of problems for a tenant, even default.

In today's issue, we focus on six essential points to cover regarding the rules and regulations under a commercial lease.

Sincerely,
Alan
Alan Katz
Mintz & Gold LLP

Breaking all the (Lease) Rules
It seems that 2016 has been a year for breaking all of the customary rules.

First there was Brexit. Like many Americans, I am a little unclear on all the details, but my best guess is that Britain is leaving the Big Ten Conference and may join the Big East.

Then, notwithstanding conventional wisdom, Donald Trump won the World Series.

And to top it off, the Chicago Cubs were elected President (I voted for my NY Mets, a protest candidate if ever I saw one).

Why, even the robot hosts on Westworld are breaking the rules and going off their loops.

The Cubs, of course, had not won since 1908, the most often heard explanation for this drought being that tavern owner William Sianis put a curse on the team when he was booted from the Cub's Wrigley Field during the 1945 World Series because of the unpleasant odor of his pet goat. Go figure.

Shameless self-promotion: Mintz & Gold has never restricted pet goats at commercial lease negotiations and we pride ourselves on providing curse free representation.

Of course, commercial leases have rules too.

No, not just the one about being nice to your attorney. I am talking about the rules and regulations often hidden in an exhibit at the back of the lease.

Notwithstanding the many restrictions on the tenant already existing in a commercial lease, landlords have understandable needs to prescribe general rules of conduct for all tenants to allow for the smooth operation of the building or project.

Typical rules govern building security procedures, use of elevators, hours of operation, soliciting within the building and the like; all of which benefit the tenants by creating a well-run work environment.

Landlords also often prescribe detailed construction and alteration rules and regulations governing work to be performed in the building.

Typical construction/alteration rules govern submission of plans, hours of construction, building standard materials, deliveries, insurance and the like.

Violations of these rules are generally defaults under the applicable lease, so tenants ignore these rules (or dismiss them as merely "boilerplate") at their peril.

Tenants should familiarize themselves with the applicable rules to make sure that the building or project is one in which they would like to establish their business. For example, if a significant number of a tenant's employees expect to bicycle to work and store their bicycle on the premises or to bring their dogs to the office, the time to confirm whether these activities are allowed is prior to lease execution.

Even more importantly, some rules may contradict the substantive terms of the lease itself, either because the standard language is not updated based on the lease negotiations or, more troubling but not unheard of, because the landlord hopes to sneak some restrictions past the more careless of its tenants.

Some rules are broad enough that they may cover (and conflict with lease provisions covering) signage, permitted use, hazardous materials and other significant matters, even though the tenant may have negotiated acceptable outcomes under its lease regarding these very same topics.

Since breaking the rules of your lease will put you in danger of being in default, not make you world series champs or the leader of the free world, follow the following six suggestions regarding your lease rules and regulations:
  • Read the Rules. Sounds simple, but you need to carefully review the rules of your lease. The standard boilerplate language may not reflect your particular business deal and you should identify any conflicts.

    In the same manner, construction rules should be read by your project team (project manager, contractor or construction manager, architect, engineer, etc.) to make sure that there are no concerns, particularly requirements that could cause delays in construction or result in hidden costs.
  • Provide for non-discriminatory enforcement. Your landlord should agree not to enforce any of its rules against you in a manner that is less favorable than its enforcement against the other tenants in your building.
  • Provide for enforcement against other tenants. Your landlord may tell you that you will benefit from various restrictions since other tenants will be similarly restricted. But that is only the case if your landlord is required to enforce those same rules against other tenants.

    Some landlords will not want to covenant to you to enforce the rules against other tenants in all instances, but might agree to do so in limited circumstances after notice if the violation of the rules adversely affects your use and occupancy.
  • Lease provisions should control. Your lease should provide that in case of any conflict or inconsistency between the provisions of your lease and any of the rules, the provisions of the lease will govern and control. You have spent a great deal of time and effort negotiating your lease and your negotiated rights should not be adversely affected. Such a provision is the best way to make sure that your lease is not overruled by a rule that was not carefully negotiated (or a rule that is the same for all tenants and not subject to negotiation).
  • Address new rules. Over the term of your lease, your landlord will justifiably want the ability to make modifications to the rules existing at the time of lease execution, but these new rules should be reasonable and tied to some industry standard (e.g., comparable buildings in the same geographic area). Require notice of new rules, an opportunity to object and that such new rules not increase your monetary obligations or adversely affect your rights or the use of your premises. Again, in the event of any conflict or inconsistency with such new rules, your lease provisions should govern.
  • Require landlord "good faith". You may want to require that your landlord not unreasonably withhold any approval provided for in the rules and exercise its judgment in good faith.
The term "goat" in sports means someone who performs poorly at a crucial time. Yet, in internet social media speak, G-O-A-T stands for "greatest of all time." Follow the six suggestions above, and your lease rules and regulations can be G-O-A-T without making you the goat.

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About Us
Mintz & Gold prides itself on providing the highest quality legal representation often associated with large law firms with the attention and reasonable costs of a smaller law firm. Mintz & Gold's Real Estate Department has a national practice specializing in a broad range of commercial real estate law, with a particular focus on commercial leasing. We have extensive experience with respect to office, retail and shopping center leasing, and have represented major Manhattan landlords, national and multinational institutional tenants and national retail chains. Most of our attorneys practiced for many years at large institutional law firms before joining Mintz & Gold.

For more information regarding Mintz & Gold's real estate practice, click here.

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Contact:
Alan Katz
katz@mintzandgold.com
Telephone: (212) 696-4848
Fax: (212) 696-1231

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