LEASE AGREEMENT REFERENCE GUIDE 500: STRATEGIES FOR OFFICE LEASE DEFINITIONS $49.95
A Look At Office Lease Definitions
This LARG focuses upon an assortment of the definitions commonly found in office leases. The clauses are followed by comment. In addition, the particular definitions are characterized (at the end of each definition) as pro-landlord, pro-tenant, or neutral, respectively, by the designations (LL), (T) and (N).
The clauses that follow were taken from several sources, and, as a result, they may not be entirely consistent in terminology. Many of the clauses that follow come from "caption" format leases, i.e., leases that contain a cover page specifying the fundamental deal points, such as the names of the parties, the rent, the length of the term, the amount of prorata share for operating expenses, and so forth. Accordingly, some clauses contain references to those items that are part of the business deal.
A Look At Office Lease Definitions--The Large Print Giveth And The Small Print Taketh Away
The practice of including a separate section of the lease containing fundamental definitions has become widespread. The impetus for doing so probably resulted from a desire to improve overall drafting of the leases themselves, since, if a separate definitions section is used, the body of the lease can focus upon the agreements of the parties without the need for lengthy and complicated definitions. It certainly satisfies that objective.
However, astute negotiators of office leases and their counsel began to notice that the practice of providing for a separate definitions section also offered the opportunity to "enhance" such definitions with miscellaneous disclaimers, separate agreements, releases, and the like. In a certain percentage of the deals, such definitions are routinely swallowed by the other side without comment. Frequently, the party responsible for negotiating the business aspects of the lease assumes that the definitions of the lease are simply "standard," and accepts them without comment. Other negotiators regard such definitions as "boring," and absent a need for an antidote to unwanted insomnia, focus upon the meatier aspects of the lease.
Even if the definitions are reviewed thoroughly for their obvious applications, in many cases, subtler impacts of the definitions can be missed by one party or the other. For example, a definition of "premises" which specifically excludes structural, utility, ducting and service facilities located within the premises may seem entirely reasonable to a tenant, but a repairs and maintenance clause giving the landlord the unfettered right to make repairs to structural or service portions of the building may subject the tenant to long and noisy repair activities conducted by the landlord or the landlord's agents within the premises. Even so, the tenant scarcely wants to be liable for repairs to structural, utility or service equipment located the building that happen to pass through the premises. Since the definitions are used in a number of different clauses in the lease, each one must be analyzed in terms of the particular definition.
Definitions And Comment
(A) "Holidays" shall mean New Year's Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and any other holiday generally observed in the City in which the Premises are located and on which other first-class office buildings in such City are generally closed. (N)
Comment: The significance of many definitions is found in the clauses to which they relate. For example, the definition of holidays that appears above relates to the building services clause in the office lease. The landlord's obligations, for example, to provide elevator service and air conditioning for its tenants is suspended during normal "holidays." Does the tenant plan to open its office on such holidays? More and more businesses are choosing to remain open during at least some of the normal holidays, often with an abbreviated staff. Although the clause that appears above is relatively neutral in orientation, the tenant should be wary of any definition of holidays that permits the landlord to unilaterally add or delete holidays from time to time in the future.
(B) "Landlord" as used in this Lease means only the owner or the mortgagee in possession or grantee in possession under a deed of trust, or the owner of the Lease of the Building for the time being, so that in the event of any sale or sales of such land and/or Building or of such Lease, or in the event of a lease of such land and/or building, the same Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder, and it shall be deemed and construed without further agreement between the parties or their successors-in-interest that the purchaser or the lessee of the Building has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. (LL)
Comment: The release for the landlord contained in the definition above obviously benefits the landlord, since it is taken off the hook for lease obligations following a sale of the building. Absent such an express release, the selling landlord would remain liable under the lease, although as a practical matter tenants would look to the new landlord for performance. The rub comes when the new landlord fails to perform, or is financially unable to perform and the tenant sues the prior landlord for performance. Hence the need for language releasing the selling landlord in the event of a sale.
The second aspect that makes this definition landlord oriented in character is the provision that, without further agreement between the landlord and the tenant, or further agreement between their successors, the purchaser of the landlord's interest shall "be deemed and construed" to have assumed all covenants and obligations of the landlord under the lease. Though that may sound comforting to a tenant, absent an express assumption of such obligations by the landlord's successor, such language is not enforceable against the successor.
(C) "Building" shall mean that certain office building consisting of approximately 120,000 rentable square feet of office space on three floors and approximately 10,000 square feet of below grade storage space, to be constructed by Landlord on the Land, as more particularly provided for in the Plans. (N)
Comment: The definition of building appearing above is relatively neutral in tenor. Note, however, that this particular definition pertains to the building which has yet to be constructed, and refers to the "plans" prepared for the building. An alert tenant should review such plans to satisfy itself that all elements that it anticipates being a part of the building are actually included in the plans.
(D) "Landlord" shall mean the Landlord herein named or any assignee or other successor in interest (immediate or remote) of the Landlord herein named, which at the time in question is the owner of the Land and the Improvements. (N)
Comment: The definition of landlord appearing above is generally neutral. It contains no express release for the landlord in the event of a sale of the landlord's leasehold interest.
(E) "Premises" shall mean the Land and the Improvements, as defined in this Section, together with all of Landlord's right, title and interest in all easements, air rights, development rights, and all other rights and other matters appurtenant to the Land or the Improvements and in and to any land lying in the bed of any roads adjacent to the Land. Notwithstanding the foregoing, the Premises shall not be deemed to include any structural portions of the Building, or any utility or service installations or facilities serving other parts of the Building. (T)
Comment: The definition of premises set forth above is pro- tenant in orientation. It "incorporates" all of the landlord's right, title and interest in easements, air rights, development rights and appurtenant rights to the land and buildings constituting the office complex into the definition of premises. This arguably expands the tenant's control over such intangible rights to the extent they relate to the premises. Even so, the exact intent of including such entitlements and development rights in the definition of premises is unclear. Does it mean that the landlord may not seek to alter development rights that arguably pertain to the premises without obtaining the consent of the tenant? Aggressive counsel for a disgruntled tenant could make big headaches for a landlord with this sort of language.
Secondly, the definition of premises specifically excludes structural portions of the building and utility installations serving other portions of the building. This exclusion is for the benefit of the clauses detailing the landlord's and the tenant's maintenance and repair obligations for the complex and the premises. It lets the tenant off the hook for any structural or utility maintenance or repairs required in the office building, but probably (through the provisions of the landlord maintenance and repairs clause) gives the landlord broad rights of entry in order to rectify structural or utility problems.
(F) "Structural Repairs", "Structural Replacements" and "Structural Alterations" shall mean and refer to repairs, replacements or alterations, as the case may be, to footings, floor slabs, foundations, structural steel, exterior walls, load-bearing walls and columns, curtain walls, retaining walls, subgrade utilities of the Improvements, joists, roofs, and window casings, all as set forth in the Plans and Specifications referred to in the Construction Agreement, and any and all alterations and replacements thereof, additions thereto, and substitutes therefor. (N)
Comment: The definition above defines structural repairs, replacements, and alterations which are, like the premises clause, related to repairs and maintenance obligations of the parties specified in the lease. The foregoing definition is a fairly expansive one, and a number of structural, utility and service items are specifically defined as structural elements. In addition, any alterations or replacements of those elements fall within the definition.