A Dozen Leasing Tips Every In-House Counsel Should Master

This tip sheet summarizes the highlights of "The Secret to Securing the Corner Office: Leasing Tips Every In-House Counsel Should Master," a CLE presentation presented by real estate partners Sara Hansen Wilson and Michael Woodruff to members of the ACC-SFBA.

1. Leases are living, breathing documents for as long as you pay your rent. You cannot put them in a drawer and forget about them.
2. Carefully review the reconciliation received from the landlord at the end of the base year because there are limits to what a landlord can pass through. Two traps to be careful of are: (a) the landlord who does not charge the annual increases—if a new management company or owner comes in, you could be responsible for the catch-up over a number of years, and (b) in California, because of Proposition 13, a dramatic increase in taxes if the building is sold.
3. Be mindful of more troublesome permitted and prohibited uses. Though most prohibited uses are typically fine for the average tenant, a few can cause trouble. For example, some leases block all alcohol consumption, which can be a problem if the tenant wants to host parties.
4. Look out for particularly expensive compliance-with-laws requirements. Potential traps for the tenant are requirements to make structural changes to the building or requirements for fire safety—including sprinklers and the like—either can be expensive and would benefit future tenants as well as the current tenant.
5. When making alterations to premises, check when the landlord's consent is required and what the tenant needs to provide. Some leases require tenants to carry performance bonds at 150% of the cost of the work, which can be very expensive. Landlord's approval can slow down timing as well.
6. Be aware that assignment clauses can come into effect if the tenant is doing corporate transactions under the "operation of law" provision, not just if the premises are being sublet or assigned to third parties. If you are buying a company or your company is being sold, you may need your landlord's permission first.
7. Be aware that the landlord may have the right to take the premises back in the event that the tenant assigns or subleases part of the premises and may also have the right to some or all of the tenant's profits.
8. When you renew your insurance, make sure it meets all of the lease requirements, as your leases will likely have very specific requirements.
9. Be aware which utilities are separately metered and which are not and which are included in operating expenses and which are paid separately. Even if utilities are paid as a part of operating expenses be aware that if you install supplemental HVAC for the computer room or the like, that may not be included in the utilities paid through operating expenses.
10. Be aware of any trade secrets you need to protect if the landlord is providing the janitorial services.
11. In providing estoppels and subordination, non-disturbance and attornment agreements (SNDAs), be careful of provisions that amend the lease from what it is now, and the landlord's right to fill out the form for the tenant if it is not done on time.
12. Be wary of two major issues at the end of the term. First, when does the tenant have to move out? If the tenant stays beyond the term, it is called hold over tenancy. The tenant may be liable for consequential damages as well as for increased rent. Second, what is the tenant's obligation to remove improvements from the premises? This may actually require an early move out. Often, cabling is required to be removed, but more improvements that the tenant has made may well also be required to be removed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.