Jerry Maguire and the Standard Lease

11/2/2016 | Articles & Alerts

This article may be the lawyer’s equivalent of Jerry Maguire’s mission statement, but here we go….I have often wondered if we have come to the point where landlords, tenants and their counsel should consider some standard lease clauses.

As with all endeavors, experience guides future conduct. This basic and inarguable fact has impacted the manner in which lease transactions progress in various ways. Intelligent parties have learned from past mistakes and past successes, and they are now more conversant on the multitude of issues raised in lease documents. In addition, many landlords and tenants are implementing a “fool me once” policy by continually supplementing their lease documents to address the problems that reveal themselves through everyday operation of hundreds of properties and hundreds of stores.

All of this means that, in some cases, lease negotiations have become excessively long and expensive. To solve the problem, it would be too easy to say that both sides need to “get reasonable”, because (usually) nobody on either side is trying be unreasonable. All parties are simply doing their jobs and trying to protect their respective organizations.

Another idea would be to consider using some standard form clauses to resolve points that get bogged down. Standard forms are used in many areas of commercial transactions. Contractors and architects have long used standard AIA forms. Swap documents in financing transactions are so sacred that you can barely negotiate a change in the name of the parties. Why are we so special? I would bet that if sophisticated landlords or tenants weighed the time and money spent on a condemnation clause, including the lost opportunity costs, against the benefit received by winning the battle on a condemnation clause, the great majority would find that they have lost money.

I am not that naïve to think that many lease clauses can be standardized, since retail deals present many site- and operational-specific considerations. However, consider just a few clauses that may be suitable for some degree of standardization:

Defaults and Remedies. Considerable time is spent on defaults and remedies. In most cases, if a tenant is truly in default, all the defaults and remedies clauses in the world are useless. The same can be said for bankruptcy clauses. It would not seem difficult to draft and agree upon a standard, fair clause.

Holdover. Would it not be reasonable to say that, if a tenant holds over, it becomes a month-to-month tenant and pays 125% or 150% of rent. If there are negotiations for renewal, some reasonable extension of time is automatically granted.

CAM. We have all seen the extensive list of inclusions and exclusions from CAM. It would seem fairly easy to create a standard list of inclusions and exclusions.

There will always be exceptions, but perhaps a set of standard clauses could be used as a fall-back if parties are truly stuck, or perhaps standard clauses can be used as the template, and exceptions taken from the standard for site-specific issues. Of course, there will be give and take on both sides, but a few standard clauses may go a long way towards reducing transaction time and accelerating the opening of stores. What would Jerry say?