LEASE AGREEMENT REFERENCE GUIDE 1450: TIGHTER OFFICE MARKETS PORTEND THICKER LEASE BOILERPLATE $24.95
TIGHTER OFFICE MARKETS PORTEND THICKER LEASE BOILERPLATE
Shrinking Vacancies Promise to Boost Rent, Toughen Landlord Leases
Every time vacancy rates shrink, landlords try to boost their rent numbers, but they also start to think about the “non-economic” clauses in their form leases. Many office landlords will have a number of clauses in mind that could benefit from, well, clarification. High vacancy rates prevent landlords from “tuning up” their lease forms. But low vacancies make for just the right time for a few tightening turns of the landlord's wrench.
From Your Pockets to Mine
Commercial landlords know that enhanced boilerplate ultimately will pull cash from the pockets of the tenant and put it in those of the landlord.
For example, let’s say the landlord successfully inserts a restoration clause in a new lease giving the landlord the right to require the tenant to restore the premises at the end of the lease term to their original condition prior to the construction of tenant improvements. That is not an economic clause—it’s not full of numbers like the rent clauses in the lease. But when the tenant figures out how much the restoration will cost at the end of the term, it just might elect to buy its way out of the obligation.
Or, what if the landlord modifies the lease’s definition of "operating costs" to permit the landlord to include several "capital items" such as new security systems for the office complex, new utility equipment for the buildings, new exterior signage, or the cost of capital improvements to the parking structures servicing the complex? Such modifications are certain to have a monetary effect upon the tenant.
The same is true for a clause which expressly permits the landlord to include its management and administrative costs as elements of the lease’s operating costs, including the cost of the rent for the on-site office. Such a provision isn’t technically an increase in the tenant’s rent—it just works out that way.
The following looks at seven different pro-landlord clauses which can be inserted into the form lease as vacancies drop in the market. In most cases, they modify existing provisions in the lease, although one of the provisions modifies the lease’s work letter dealing with tenant improvements.