Lease Interpretation Drafting the Lease

Leases come in many different forms and varieties in the commercial real estate business. The gold standard form is the AIR Commercial Real Estate Association, a non-profit association of industrial and office real estate brokers and professionals. They have been producing commercial real estate forms for at least 45 years. Also, there are leases which are custom made to a particular building or business park created by the owner’s lawyers.

Whether a company uses an AIR lease or a custom made lease, the lease interpretation is the basis for the transaction. Most real estate lawyers have great familiarity with the AIR Lease and many of its addendums. AIR has crafted many forms that will fit all areas of commercial real estate: industrial, office and retail. These forms leave little room for interpretation. I might add that these leases are reviewed each year by outside counsel and a group of AIR commercial brokers in order to keep up with changing laws and practices.

In the event that a custom lease is utilized, the issue is interpretation and if the contract is up to date. Custom leases usually require substantial modifications in order to protect both parties, and they usually take longer to negotiate.

Recently, I represented a trucking company who leased a property owned by an insurance company. The insurance company had their own custom lease and it was a nightmare for the prospective tenant from the point of negotiations. The lease was so cumbersome that the tenant took on the task of personally reviewing it and handed me 10 pages of corrections. My first reaction was that he should stay in the trucking business and stay away from the practice of law. I strongly recommended he employ a top real estate lawyer. The lawyer produced far more pages of proposed modifications. The end result is that the lease was consummated, but the legal fees for both sides were outrageous. However, using an attorney may have saved them much more money down the road if the lease was misinterpreted.

A major issue is when the lease does not address every aspect of the transaction. Therefore, a lease addendum must be produced. AIR has manufactured several different addendums which eliminate the need for drafting of “most” addendums. Lawyers play a strategic role in creating additional addendums which are specific for the type of “use” intended for the space. It is the power of a good addendum which drives and clarifies the boiler plate of the lease form.

My experience as a commercial real estate broker in Los Angeles has been a good real estate lawyer is the key to avoiding disputes in lease interpretation. The lawyer should know most aspects of the way his or her client does business; as a result, the lawyer will produce the contract that will suit his or her client’s needs.

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Los Angeles, CA 90064