You’ve read the first ten pages of the proposed commercial lease and are satisfied that it reflects the deal points. And then you get to the last three pages and the section titled “Miscellaneous.” Your eyes glaze over and you consider pouring that fourth cup of coffee. Or, you think, these are just “boilerplate” terms and you don’t really need to read them. This would be a mistake.
Commercial leases are important contracts that must be read thoroughly in order to be fully understood. While most people read the important contract clauses such as rent amount, term, and escalations, some people ignore the common “boilerplate” lease clauses such as force majeure or jurisdiction. However, since these common lease clauses can and do vary, it’s also important that they are read thoroughly and understood, in addition to the rest of the contract.
In this article we’ll take a closer look at 10 common “boilerplate” commercial lease components with examples and items to look out for.
Boilerplate Legal Definition
The term boilerplate, as it’s used in law, has been defined as “A description of uniform language used normally in legal documents that has a definite, unvarying meaning in the same context that denotes that the words have not been individually fashioned to address the legal issue presented.”
The problem though is that virtually all the language in commercial real estate leases has been individually fashioned, and while it may reflect the desires of the drafting party, it may not meet the needs or intentions of the second party. Since these terms can dramatically affect your rights and duties under the lease, understanding their purpose and pitfalls is vital.
Let’s take a look at 10 common “boilerplate” provisions in commercial real estate leases (and in fact, in most commercial contracts), their purpose, examples of each, and items to consider when reviewing them.
1. Notice
How can you terminate the lease? How can you renew? How and when can rent be increased? While the right to do any of these may include many conditions, one will almost always be that you gave proper notice to the other party. Failure to follow the terms of the notice provision can thus deprive you of a right you would otherwise have, or subject you to an obligation you wished you did not have.
A typical notice provision will include (1) to whom and where notice must be addressed, (2) by what methods must it be sent, and (3) when notice is deemed received. Here is an example notice provision:
Notice. (a) Form of Notice. All notices provided for under this Lease must be in writing and addressed to the following: (i) Landlord: John Smith, ABC Company, 1234 Main Street, City, State, (ii) Tenant: Jane Smith, XYZ Company, 5678 State Street, City, State. (b) Method of Notice. Notices shall be delivered personally, or sent via certified mail, return receipt requested, or via email confirmed by both parties.
2. Force Majeure
Force majeure clauses protect parties in case of unforeseen events (e.g., natural disasters). These can excuse obligations temporarily or permanently. Review this clause carefully to understand what counts as a force majeure event and the remedies available.
3. Indemnification
This clause outlines each party’s responsibilities regarding damages and losses. Ensure that you are clear on what liabilities you are indemnifying the landlord for and whether the landlord is accountable for your damages.
4. Waiver
A waiver clause indicates that if one party does not enforce a right immediately, it does not mean they lose that right forever. Understand the implications of any waivers in your lease.
5. Governing Law
This clause specifies which state’s laws will govern the lease. Familiarize yourself with the laws of that state, as they will apply in the case of disputes.
6. Assignment and Subletting
This clause determines whether you can assign the lease or sublet the space. Make sure you are not giving away rights that could be important for your business operations.
7. Default and Remedies
Understanding what constitutes a default and the remedies available can help protect your interests. Ensure that you know the process and outcomes if either party defaults on their obligations.
8. Confidentiality
Confidentiality clauses prevent either party from disclosing sensitive information. It’s essential to understand what information is classified as sensitive and what your obligations are.
9. Entire Agreement
An entire agreement clause denotes that the lease is the complete understanding between the parties. Any side agreements might be unenforceable; review this provision to ensure nothing important is missing.
10. Severability
This clause allows the rest of the lease to remain valid if one part is found invalid. Understanding this clause can be vital in ensuring your lease remains intact even if challenged.
Conclusion
Reading and comprehending boilerplate clauses shouldn’t be overlooked in commercial leases. By knowing these key components, you can protect your rights, prevent misunderstandings, and negotiate more effectively.
