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Common Ambiguous Terms in Commercial Leases

Common Ambiguous Terms in Commercial Leases

In my representation of tenants in commercial lease negotiations, I often encounter ambiguous language in landlord form leases that is potentially harmful to tenants.  This blog entry focuses on a few ambiguous terms that are prevalent in landlord form leases.

“Faithful Performance” or “Performance of Each and Every Covenant in this Lease”: Certain rights of tenant often are contingent on Tenant’s “faithful performance of all of the terms and conditions under the Lease.”  For example, Tenant’s right to receive abated rent, a renewal option, the return of its security deposit, etc., require Tenant’s faithful performance under the lease.  However, what does faithful performance mean?  What if the Tenant is one day late on rent one time?  Is that unfaithful?  What if the Tenant’s employees park in the wrong parking spaces?  In such instances, can the Landlord eliminate all of these rights due to unfaithfulness?  The best practice is to eliminate the “faithful performance” standard and simply state “the Tenant has the right to [insert description of right].”  In that case, the Landlord still has its traditional remedies under the Lease, but cannot pick and choose what rights it is going to eliminate.  The second best alternative is to state that the Tenant’s right is conditioned upon Tenant not being in default beyond the applicable cure period.  That is a clear, reasonable standard to enforce.

“First-Class Building” or “Class A Building”: Landlord lease forms often require that the Tenant maintain the leased premises consistent with a first-class office building.  What does first-class mean?  Who determines which buildings in the area are first-class?  What if the building itself is not first-class?  A better standard is that the Tenant will comply with all laws and building codes.  Further, the Tenant could agree to maintain the leased premises in a manner consistent with the other tenants in the building.

“Improper, Immoral or Objectionable Purposes”:  Leases often prohibit the Tenant from using the premises in an improper, immoral or objectionable manner.  This allows the Landlord too much flexibility in determining whether the Tenant’s use is a default.  Tenant should only agree to prohibitions against using the premises for illegal purposes.

“Fair Market Rent”: See prior blog entry: https://azleaselaw.wordpress.com/2010/01/31/determination-of-fair-market-rent-part-1-of-2/

“Disability of Tenant”: See prior blog entry: https://azleaselaw.wordpress.com/2010/03/08/death-and-disability-clauses-part-2/

Prior to using any language or concepts from this blog entry, consult with an attorney.

Ryan Rosensteel is a real estate and construction attorney licensed in Arizona.  You can contact him at ryan.rosensteel@azbar.org.

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