In the Spotlight: Drafting Better Leases for the Commercial Tenant
Too many tenants’businesses have suffered severe financial consequences or lost leases as a result of poorly drafted provisions. Therefore, it is imperative that tenants negotiate better leases in order to protect their interests. The suggestions in this article provide proposed remedies for a few of the harshest lease provisions. Although market conditions always play a factor in providing negotiating leverage to a landlord or tenant, some of these proposals should survive scrutiny in any real estate market.
Requiring the Landlord to Mitigate Damages
In a number of American states,landlords are not required to mitigate damages when a commercial tenant defaults on its lease and surrenders or is removed from the premises.As the tenant of record remains liable for all rents due during the remainder of its term of the lease,a landlord has no incentive even to attempt to re-rent or alleviate a defaulting tenant of its duty to pay rent.Landlords are not obligated to mitigate prospective losses in the event of default on rent payments.This has produced exceedingly harsh results.
Hence,every lease should contain a clause providing that upon a default in the lease that results in the surrender or eviction from the premises,the landlord agrees to mitigate its losses and to use reasonable efforts to re-lease the demised premises. If it can be negotiated,such a clause should include a requirement by the landlord to advertise weekly and to employ a qualified real estate broker to find a new tenant to lease the premises.This clause should also include a duty by the landlord to attempt to rent the premises for at least the same rent to reduce any remaining tenant liability.