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“Any method of negotiation may be fairly judged by three criteria: It should produce a wise agreement if agreement is possible. It should be efficient. And it should improve or at least not damage the relationship between the parties.” So say Roger Fisher and William Ury in Getting to Yes 4 (2d ed. 1991). In the classic method of lease negotiation, the landlord submits its standard form, often in excess of 60 pages, regardless of the size of the relevant premises or the term of the relevant lease; the tenant reviews the proffered form; and the negotiations proceed from there. (In the case of national retail tenants, the tenant submits its standard form, but this article will assume the process starts with the landlord’s submission.) This method, usually more often than not, complies with the first criterion above: It produces a wise agreement. This method, usually more often than not, complies with the third criterion: It does not damage the relationship between the parties. However, much more often than not this method fails the second criterion-and fails it miserably: It is not by any means efficient. This lack of efficiency is a direct result of landlords time and time again proffering to prospective tenants forms that contain numerous provisions that do not address the tenant’s needs. And landlords do this knowing many tenants will complain about these clauses, and also knowing that if a prospective tenant requests that these provisions be changed, the landlord will capitulate. Although there always will be variations in individual situations, often it is the same clauses about which a tenant will complain, only to receive the landlord’s standard response, followed by the standard arguments by counsel and, ultimately, the standard compromised result. This not only fails to meet the criterion of efficiency, it is a case study in inefficiency. Worse, it is inefficiency coupled with unnecessary expense in terms of legal fees incurred to negotiate the same provisions over and over again. But there is an alternative method available that undeniably better serves criterion 2 in that it is more efficient, and arguably better serves criteria 1 and 3 as well. Although not known by any official doctrinal title, the method is for the landlord to create a standard form and proffer in the first instance what one might call a “prenegotiated” lease-that is, a lease where the landlord has built into the form as many of the conventional compromises as it finds acceptable. This serves the cause of efficiency in two ways: It avoids the time and energy wasted on negotiations over clauses about which the landlord is willing to compromise, and it helps send the message (at least to experienced counsel) that the likelihood of the landlord being flexible on various other clauses is not great (because if the landlord was willing to be flexible on those scores, the lease form would already reflect that flexibility). This approach results in shorter, easier negotiations, increasing efficiency, thus saving the landlord and tenant money. It probably results in wiser agreements and better tenant relations as well. And the best part is that this result is achieved without the landlord giving away any position about which it actually cares. There is no universal list of the provisions in a lease that should be prenegotiated. There is no universal “right way” these provisions should come out. The individual needs (or quirks) of the particular landlord, the accepted practices in the region, the size of the relevant structure, the prototype size of any individual premises, the landlord’s practices concerning the necessary level of credit-worthiness of prospective tenants and the statutory or common law of the relevant jurisdiction are but some of the factors that might affect any of the provisions to be discussed. But for the experienced practitioner it is not difficult to list what provisions are probably going to be problematic in the landlord’s standard form, what position the tenant will take, the arguments on each side and the range of conventional compromises. Provisions to consider Set forth below are some of the conventional compromises to which landlords and tenants often agree. In using as many of these compromised positions as a landlord finds acceptable in its standard lease form, the landlord has prenegotiated the lease and created efficiency not only by including the acceptable provisions, but by thinking through and rejecting the other provisions. Having thought through these positions in advance and deciding to reject same, the landlord will be able to respond immediately to the inevitable tenant requests to modify these particular provisions with rational arguments. The clauses are in no particular order. Alterations. Virtually every tenant is going to want to know its initial build-out is acceptable and that thereafter it has some level of freedom to make alterations. A landlord should consider including in the form permission, without consent, to make nonstructural alterations that do not materially harm building systems, perhaps subject to a dollar cap. If a cap is included, it should not be so low as to forestall the possibility of any meaningful work being permitted. A landlord should consider allowing alterations that do not require consent to remain at lease expiration. The landlord would also be obligated to inform the tenant at the time of granting approval (as to alterations that require approval) whether the relevant approved alteration may remain at lease expiration. Assignment and subletting. Affiliates, mergers and consolidations, asset sales, public companies, estate planning-does a tenant’s need for some flexibility in these provisions without requiring consent, or being subject to recapture or a rent hike or a landlord review fee, come as a shock to anyone? A landlord should consider what is acceptable-and consider volunteering it in the lease form. Assignment of extension and expansion options. Is this part of the bargain for which the tenant is paying, and accordingly assignable whenever the lease is assignable, or personal to the named tenant? Traditionally, on the East Coast the right was the tenant’s to assign. On the West Coast, these rights traditionally have been viewed as personal to the named tenant. A landlord might consider allowing the rights to be transferred, but only to any person to whom the lease can be transferred without consent. Common area maintenance (CAM). How CAM obligations should be defined in a lease can and has been the source of articles and lectures-and a complete discussion is beyond the scope of this article. However, the treatment of capital expenditures is often a topic of debate. The landlord often starts with the position that any penny spent on anything is properly included in CAM (and often, but not always, provides for some type of amortization of capital items). The tenant often starts with the position that it should have no responsibility for capital items, as it has no equity in the building. A prenegotiated compromise to consider is to include in CAM only capital expenditures incurred to replace existing building equipment or reduce building operating costs (as compared to lobby renovations, art work or other changes mostly designed to attract new tenants). Such expenditures would be amortized over the useful life of the improvement (without an artificially short absolute maximum period of reimbursement), and without an interest factor (the tenant is not financing a purchase; it is paying an annual use charge). Tenant’s right to audit CAM charges. A landlord should consider providing this right. If it does, the landlord should further consider not mandating that the tenant provide specific information as to the details of the complaint in advance of the audit. If the tenant knew the details, an audit wouldn’t be needed. And the landlord should consider not mandating that the auditor be a “Big 4 firm” or even a certified public accountant; the required professional fees might be enough to cause the tenant to forgo the audit. A landlord should consider as well not mandating that the auditor refrain from working on a contingency fee or from contacting other tenants, although these last two points are ones landlords might be loath to relinquish. Damage by fire. Leases almost invariably provide landlords tremendous flexibility while very often providing tenants none. A landlord might consider providing tenants a right to terminate, especially as the term draws to a close, and might also consider granting this right if parking or access is affected even if there is no direct damage to the premises. Environmental clauses. A landlord should consider allowing de minimis amounts of cleaning and other toxic products to be maintained in offices in the ordinary course, and consider making compliance with law, as compared to compliance with the landlord’s subjective decisions, the standard of required behavior. The lease should make clear that the tenant has no responsibility for pre-existing conditions. Interruption of services. Absent a 9/11- or Katrina-type disaster, how often are services interrupted for extended periods of time? A landlord should consider volunteering rent abatement if services are disrupted for more than a relatively short period-maybe 72 hours. Holding over. A kick-up of basic rent is de rigeur. But a landlord should consider dropping both multipliers of CAM and broad-stroke indemnities against any and all damages, and protect itself from problems with new tenants in the delivery section of that tenant’s lease. Overtime heating, ventilation and air conditioning. A landlord should consider volunteering that multiple tenants in the same zone will divide the hourly rate, rather than each paying in full. Notice of monetary defaults. How many thousands of times has this topic been discussed? And how many times has a landlord terminated a lease without demanding the overdue rent be paid-not once but multiple times? Landlords do not desire evictions or empty spaces-they want the cash flow. Almost invariably, notice of nonpayment is delivered. So a landlord should think about putting it in the form. And it does not have to be all or nothing-perhaps on the third monetary default in any consecutive 12-month period the landlord can proceed without notice. (And landlords should also consider whether requiring credit and payment history reports on prospective tenants might be a better tool to guard against nonpayment than preserving the lease clause entitling the landlord to evict without notice.) Remedies. This is another topic that perhaps merits a treatise of its own. For purposes of this article, a landlord should consider whether the form, if it includes the right to accelerate rents, should also include a fair market value credit for the then-remaining value of the space upon such acceleration of rents. Mitigation of damages. Although this topic is particularly jurisdiction-sensitive, a landlord should contemplate whether its purposes are not better served by acknowledging that it has an obligation to mitigate, while also objectively defining what steps will be deemed to satisfy this obligation. Indemnity by tenant. To be even-handed, a reciprocal indemnity of the tenant by the landlord might be added (or a lease section captioned “Landlord’s Defaults” might be commonplace). Absent tenant negotiating power, this is beyond what practice dictates should be offered in the first instance. But limiting the indemnity by excluding events arising from the landlord’s gross negligence (if not negligence), wanton misconduct and breach of contractual obligation is a concept worth considering. Estoppels. Rather than simply mandating that the tenant, on demand, deliver an estoppel-a document in which the tenant is asked to make certain representations-a landlord should consider volunteering to deliver one when requested by the tenant. Given the possible volume of requests, a landlord might also contemplate including an appropriate administrative fee to be charged in connection with processing such a request. Representation re brokers. A landlord should likewise contemplate a reciprocal representation and indemnity, that is, one in which the landlord volunteers that it has not dealt with any broker other than those named in the document. Standard of review. Like mitigation, this topic is jurisdiction-sensitive. Some courts will accept that “sole discretion” means sole discretion. Many will find a way to compel a party to a contract to be (at least what the judge believes to be) reasonable. In one of the latter jurisdictions, a contractual agreement to be reasonable doesn’t impose upon a landlord an obligation it doesn’t already have. In a jurisdiction that will enforce the lease as written, the landlord should contemplate whether an overriding standard of reasonableness is acceptable. Length, generally. Consider the artificial mandate that every section of the lease be reduced by 15%. Landlords might not be successful in every instance, but they might be able to trim the form quite a bit. After all, is it really necessary to have a 60-page document for a 6,000-square- feet space being leased for three years? There is no one perfect lease that works for every landlord in every setting. But if the time and effort is invested to prenegotiate a lease form, and to simply trim its length as well, the effort will be rewarded in savings of time and money, without loss of meaningful rights. Shepard A. Federgreen is a director at Newark, N.J.’s Gibbons, Del Deo, Dolan, Griffinger & Vecchione in its real property and environmental law group, and practices from the firm’s Newark and New York offices. He counsels clients on a wide array of transactions involving the acquisition, sale, financing, leasing and development of real estate assets. He is a member of the American College of Real Estate Lawyers.

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