What a “Tenant and a Landlord” should be extremely careful of when signing a lease is to first employ an experienced lawyer for both sides. People tend to get lazy because there are very good forms that are manufactured and feel that legal counsel is not required. Do not get fooled, since laws change all of the time and the lease that you may have sitting in the drawer is not current with constantly changing legal aspects.
It has been found that four (4) paragraphs in a lease must be constantly modified or placed upon a separate addendum to make them appropriate for the proposed tenant.
These are the fabulous four:
1. Compliance
This has to do with the tenant’s use. Does the use that the tenant intends to use the premises conform to its use inserted within the lease? Do certain modifications have to be made to the premises in order to comply with the tenant’s use, even though the prior tenant did the same thing? Did the prior tenant occupy the premises utilizing a conditional use permit which might expire when the prior tenant vacates? Are the zoning codes appropriate for the new use? Do certain improvements need to be made to the premises such as adding fire sprinklers or an additional door for exiting or entering?
The items mentioned above should be verified even before the new tenant receives the lease. This due diligence is imperative, so don’t sign the lease until you verify all of the items mentioned by the Building Department, Zoning, and Fire departments in your City.
Also, the landlord should work closely with its lawyer and determine the actual uses of the tenant that may cause problems for insurance or possible health and safety issues.
2. Acknowledgments
This paragraph deals with the inspection of the property. Over the years, this property may have been occupied by several tenants who may have added certain items which may be of benefit to the new tenant or possibly a hazard.
It is advisable to employ an electrician, plumber, and roofer to determine the actual condition of the property. As modifications to the property probably have occurred through various stages of occupancy by numerous tenants, the plumbing and electrical installations were changed. A trip to the Building Department in the City may open your eyes to installations that may have been modified without the inspection of the City or a permit. Tenants and Landlords should be very cognizant of items that require a permit. Electrical fires are caused a great deal of time by not having a licensed electrical contractor install changes in the building without a permit. Even a plumber must take out a permit for changing a water heater. Also, the modifications after their installation must receive a final inspection by the department within the City.
3. Tax Provisions
As a tenant, you will be responsible for paying the property taxes either directly to the City or to the Landlord depending upon the type of lease that is utilized. Your lawyer should advise you to be aware of tax stop increases in the event of a sale of the property. The general provision of the lease is that you pay the taxes assessed to the property. Therefore, whatever the amount, you must be aware of the amount and not flinch when you receive the bill.
In California when a property is sold the property taxes are then assessed on its new valuation. As a tenant, If you do not negotiate a term in the lease which limits your exposure to tax increases, your taxes may increase severalfold.
The modifications that are suggested are to place a cap on tax increases or no increases in taxes, with the exception of inflation protection by the Landlord, or not to increase the real estate taxes during the initial term of the lease. Further, this modification may be further enhanced to protect the tenant from lease extensions.
4. Improvements and Alterations
There are certain protocols for tenants that should be in the lease regarding improvements. Usually, improvements are allowed subject to consent, which consent may not be unreasonably withheld. The issue becomes messy when a tenant needs a few outlets in their office or adds a wall in an office to create two offices where one existed prior to the tenant’s occupancy. These small changes must adhere to the landlord’s consent.
These modifications, whether big or small, need Landlord’s approval. Even if you are changing something or replacing something that may have worn out with the same fixture. A good example of the replacement of the HVAC system that has outlived its useful life and the new system has to be installed. In the HVAC replacement, permission from the landlord is imperative especially if it’s a roof-mounted system.
All tenants must follow the protocol of approval provided within the lease or it could cause a violation or breach of the lease. It is also important for the landlord or property manager to make periodic inspections of the property and take photos of things that may have been changed over the term of the lease.
In conclusion, the items mentioned herein, cause costly lawsuits. It is wise that the Landlord or Tenant pay particular attention to these items. If you would like to speak with Lee Segal, Commercial Real Estate Expert Witness, contact Segal Commercial today.
