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                            Issues Related to
                  Commercial Property Leases

Lease Provisions

The following are several issues that relate to the form of the
lease and the terms, conditions, and provisions that are
included in leases for commercial properties.

- Underlying Lease Requirements.  Commercial leases are
subject to the same underlying requirements as other leases;
specifically in Florida, if the term of the lease is more than one
year then the lease must be in writing and witnessed, the
landlord must be identified and an address listed for the
landlord, and the leased space must be identified.  With leased
commercial space that is part of a larger building, identifying
what the tenant is leasing is not always easy because it may not
have a discreet address and partitions within commercial
spaces are often moved to accommodate the needs of tenants.  
Therefore often a detailed sketch may be the most effective way
of identifying the leased space in a commercial lease.

- Subordination, Non-Disturbance, and Attornment Agreements
(SNDA).  If a project is financed and there is a mortgage on the
property, either the lender or the tenants may request an
SNDA.  When a mortgage is foreclosed, the title to the property
is taken by the foreclosing party in the same condition and state
as existed the day the mortgage was granted, therefore all
documents and events that affect the property after the
mortgage was originally granted are negated by the
foreclosure.  A tenant obviously does not want their leasehold
rights negated by a foreclosure so they obtain from the lender
an agreement that states that if the lender forecloses on the
property, the lender will not disturb the tenant’s right to occupy
the leased space so long as tenant is abiding by the terms of
the lease (Non-Disturbance).  If the tenant is not abiding by the
terms of the lease then the lender who foreclosed on the
property is still free to evict the tenant.  In return for this
assurance from the lender, the tenant agrees to make their
lease subject to the lien of the mortgage (Subordination),
because lenders always want or need to have the lien of their
mortgage in first position in regards to any claims on the
property.  The tenant also agrees that if the lender forecloses
on the property then the tenant will look to the lender, who then
owns the property, as the landlord (Attornment), even though
the tenant’s lease agreement is with the original landlord, and
the tenant will then pay all future rent to the lender as opposed
to the original landlord.

- Indemnification.  Landlords and tenants often want
indemnification from the other party so that if a third party is
injured, that third party cannot hold the indemnified party liable
for their damages and injuries.  But both the landlord and the
tenant will often want extensive and far-reaching indemnification
from the other party, both of which cannot simultaneously exist.  
Therefore a compromise often reached is the tenant indemnifies
the landlord for injuries that occur within the leased space,
because the tenant occupies the leased space day-in and day-
out so the tenant is in the best position to prevent injuries from
occurring within this space and therefore the Tenant is in the
best position to prevent liability from accruing.  The landlord
then often indemnifies the tenant for injuries that occur outside
the leased space but within the landlord’s property, because the
landlord typically maintains or causes those areas outside of the
lease space to be maintained so the landlord is in the best
position to prevent injuries from occurring in these areas and
therefore the landlord is in the best position to prevent liability
from accruing.  However each party should be responsible for
their own negligent or intentionally harmful acts, regardless of
where it occurs.

- Guaranty.  If the tenant is an entity (a corporation, limited
liability company, professional association) landlords should try
to get a person or people to personally guaranty the lease,
especially small tenant entities or single store tenant entities.  
Without such a guaranty, it is too easy for the entity to be left
with no assets so there is no way for the landlord to recover its
damages.  Also, the guarantor should not be the tenant; the
tenant is already obligated to observe the terms of the lease
because they are the tenant so having the tenant execute a
guaranty does not provide any additional protection.

- Assignment and Subletting.  Landlords should always have
approval rights before a lease is assigned or leased space is
sublet.  Tenants often try to get released from the obligations
under the lease if the landlord accepts the assignor or the
sublessee.  A compromise often is that the landlord will limit the
original tenant’s liability to only a certain period of time after the
assignment or subleasing and after that period of time has
expired, the landlord can only look to the subtenant in the event
of a default by such subtenant under the terms of the lease.

                                                              Return to Commercial Lease Issues
Law Office of
Craig W. Little, P.A.