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Common Boilerplate Provisions in Real Property Leases: A Commentary

There is no shortage of commentary and reference material covering the drafting and negotiating of a real property lease. As a result, it is tempting to try to cover more ground or to go further than others have gone when analyzing a lease’s provisions. In this case, a deliberate effort has been made not to succumb to that temptation.

The scope of this material is to look at “boilerplate” clauses in a typical lease. But, what really is “boilerplate”? The word’s common meaning is a provision that is ordinary, common, and by implication generally acceptable. In reality, there are very few, if any, such clauses in a form lease. So, the treatment that follows will look at some clauses that are often found in a pre-printed lease form. They are ordinary and common, but not necessarily generally acceptable – especially to a tenant. No bias was intended in preparing these materials. Nonetheless, it is impossible to be entirely balanced as between a landlord’s concerns and a tenant’s concerns. After all, pre-printed forms are designed for sale to landlords, not tenants.

It would be a significant omission to leave out the observation that the most frequently encountered “boilerplate” provision in a lease (or any other contract) is the “blank space” or “the provision that is ordinarily and commonly” left out of the document. By example, and as will be discussed in greater detail below, when the usual pre-printed form lease does not require a landlord to maintain the property, provide services or carry insurance, that is, in effect, a boilerplate provision – ordinary and common, but significant by its omission.

No attempt is being made here to be comprehensive or to transfer a lifetime of leasing experience to the reader. Instead, the approach taken below is a simple one. We’ve made fair use of a selected and limited number of provisions from a popular New Jersey pre-printed lease form. Then, we’ve made comments, mostly about the underlying principles behind the provisions. Hopefully, this will be somewhat refreshing because these provisions are so familiar to New Jersey practitioners, and it is common to gloss over them. And, in doing so, it is easy to lose sight about what they are really saying. Further, while there are many formulations of these ordinary and common clauses, each using different words, the underlying principles and issues are the same.

The format is simple. First, we present the “standard” lease provision. Then, we address how its “boilerplate” nature may fail to address legitimate concerns of the parties, most often of the tenant, but significantly, also of the landlord.

RENT

BOILERPLATE: The Tenant agrees to pay $ as rent, to be paid as follows: $ per month, due on the day of each month. The first payment of rent and any security deposit is due upon the signing of the Lease by the Tenant. The Tenant must pay a late charge of $ as additional rent for each payment that is more than 10 days late. This late charge is due with the monthly rent payment. The Tenant must also pay a fee of $25.00 as additional rent for any dishonored check.

COMMENT: Rent should be stated to be payable in advance, without notice, demand, set-off or abatement. It should also state where it is payable.

If the Lease doesn’t recite that rent is payable in advance, the common law would seem to say that periodic rent is payable at the end of the period, after the possession has been enjoyed.

Under common law, absent waiver, if a landlord does not make a demand for rent on the day rent is due, then it can’t evict its tenant for non-payment. I doubt that this rule has any remaining validity. Nonetheless, the reason one sees: “rent is payable without demand” is because this concern is being addressed. Also, the common law is that, absent agreement to the contrary, the landlord must pick up the rent at the leased premises.

Effectively, in residential lease disputes, a court can and will set an “equitable” rent under the doctrine that a residential tenant is entitled to habitable premises. And, if the premises aren’t habitable, the rent is too high and should be reduced until the premises are made habitable. There is no corresponding doctrine for commercial premises, even though the law is slowly, slowly, moving in the direction of incorporating a view that commercial premises must be free of physical defects that materially deprive a tenant of the benefit of its bargain. That having been said, adding that rent is to be paid without set-off or abatement should eliminate such a defense to a commercial eviction action based upon non-payment of rent. In New Jersey, and other jurisdictions with mandatory counterclaim rules, a tenant can still make a claim for damages in a collection action against it by its landlord.

Leaving a “blank” for inserting a late charge can tempt a landlord, especially one who has had bad tenant experiences, to insert a punitive amount. Take care, because if the stated amount is truly punitive, you shouldn’t expect it to be enforceable. The analysis for a residential lease is likely to be more in favor of the tenant than that for a commercial lease. In an unpublished case, one appellate panel expressed its uncertainty when it pointed out that “nlike residential tenancies, the terms of commercial leases are almost exclusively derived by market forces.” Generally, “a commercial landlord is free to negotiate with the tenant the terms of a lease, including ‘additional rent fees’ for late payment of rent.” To the Court, this didn’t mean “that there need not be a nexus between the amount of the fee charged, and any additional reasonable administrative cost incurred by the landlord. A late fee provision in a commercial lease is, at its essence, a stipulated damages clause.” Consequently, a liquidated damages analysis can be expected in a contested matter, especially if the late fee asserted a grossly disproportionate one, such as one that compounds without rationale.


PURPOSE

BOILERPLATE: To be used and occupied only and for no other purpose than . The Tenant shall not, and will not allow others, to occupy or use the leased premises or any part thereof for any purposes other than as herein limited, nor for any purpose deemed unlawful, disreputable, or extra hazardous, on account of fire or other casualty.

COMMENT: While fundamentally a business issue, the basic tension is between a landlord’s desire to closely manage its property and a tenant’s desire to allow for later flexibility. From a tenant’s point of view, the gold standard is: “For any legal use.” This would allow the tenant to change the nature of its business without hindrance by its landlord. It would also allow for maximum flexibility when assigning the lease or subletting the leased premises.

It is common to add: “and such other incidental uses as are commonly conducted in connection therewith” after the expressly stated use. Concededly, it is doubtful that a court would enforce a landlord’s barring of an activity logically related to the stated purpose, such as maintaining an office at the back of a store if it is only for that store’s administrative needs. On the other hand, a court might bar a retailer from using the back of its store as an administrative office for even a two-store chain or for storing goods for a remote location if the permitted use clause only allowed a particular type of retail store. While one could argue that the landlord is acting unreasonably in the example above, it would be more difficult to make the same argument when a landlord, to protect a jewelry store tenant, claims that a tenant permitted only to operate a nail salon cannot not sell jewelry on an incidental basis.

There is an interrelationship between the purpose clause in a lease and its assignment and subletting provisions. If the purpose or use clause is too restrictive, a landlord who approves a particular lease assignment or a particular subletting of the leased premises is not obligated to consent to a change to the permitted use.


CONSENT

BOILERPLATE: None. Blank.

COMMENT: Think broadly, the blank spaces in a lease also constitute “boilerplate.” So, a leasing attorney should think about replacing some of the “blank” boilerplate with boilerplate of her or his own. One such provision that might be added is: “Unless expressly stated otherwise in this Lease, no consent or approval required to be obtained shall be unreasonably withheld, delayed or conditioned.”


ALTERATIONS AND IMPROVEMENTS

BOILERPLATE: No alterations, additions or improvements shall be made, and no climate regulating, air conditioning, cooling, heating or sprinkler systems, television or radio antennas, heavy equipment, apparatus and fixtures, shall be installed in or attached to the leased premises, without the written consent of the Landlord. Unless otherwise provided herein, all such alterations, etc., when made, installed in or attached to the said premises, shall belong to and become the property of the Landlord and shall be surrendered with the premises and as part thereof upon the expiration or sooner termination of this Lease, without hindrance, molestation or injury.

COMMENT: At common law, a tenant had no right to make any but the least permanent changes to its landlord’s property. Thus, any right that a tenant has to make alterations must derive from the lease. If a tenant has plans to initially adopt the leased premises for its use, the best time to get such approval is in connection with negotiating the lease. That’s when a landlord, hungry for a tenant and the tenant’s rent, will be most flexible.

The boilerplate Alterations and Improvements provision above sets no standards and give the tenant no permission whatsoever because, in effect, it reserves all of those issues for the landlord to later make the rules.

From a landlord’s point of view, it might be appealing to know that whatever the tenant installs becomes the landlord’s property and must remain when the tenant leaves, but not every addition to the leased premises is a benefit. Some additions are burdens. They need to be insured. They add to the tax assessment. They may be useless and costly to remove. Ask any landlord who “inherited” a bank vault or was left with the sloped floor of an obsolete movie theater. For those reasons, and to protect a landlord who might forget to “condition” its consent to a tenant’s alterations by requiring later removal of some elements, to reserve, in the lease, the right to decide what stays and what goes when the lease expires or is otherwise terminated.


REPAIRS AND CARE

BOILERPLATE: The Tenant has examined the premises and has entered into this Lease without any representation on the part of the Landlord as to the condition thereof. The Tenant shall take good care of the premises and shall at the Tenant’s own cost and expense, make all repairs, including painting, decorating, and shall maintain the premises in good condition and state of repair, and at the end or other expiration of the term hereof, shall deliver up the rented premises in good order and condition, wear and tear from a reasonable use thereof, and damage by the elements not resulting from the neglect or fault of the Tenant, excepted. The Tenant shall neither encumber nor obstruct the sidewalks, driveways, yards, entrances, hallways and stairs, but shall keep and maintain the same in a clean condition, free from debris, trash, refuse, snow and ice.

COMMENT: Under common law, absent a specific agreement in the lease, no one had any obligation to make repairs. When life was agricultural, that may have worked, at least for the landlord. After all, if the property needed repair, the tenant was harmed, not the landlord. Rent had to be paid regardless, and the tenant was penalized if it committed waste. Today, every lease allocates maintenance and repair obligations. On the other hand, form leases rarely address replacements.

With respect to repairs and maintenance, the law distinguishes between residential and non-residential tenancies. Basically, by law and practice, a residential landlord has an obligation to make repairs if failing to do so would make the leased premises unsafe or less than habitable. Leasing and tort law might make the residential tenant pay for those repairs if they were necessitated by the tenant’s wrongful act, but that doesn’t relieve the landlord from its basic repair obligations.

There is no similar principle when it comes to commercial leases. In a commercial lease, each party is responsible for whatever the lease demands of it. The landlord and tenant get to allocate the responsibility for maintenance, repairs, and replacements, and to designate who pays for that work because it isn’t always the one that does the work.

The sample provision above demands that the tenant maintain and repair the leased premises, but doesn’t make the landlord responsible for anything – not the exterior walls, not the structure, not the roof, not the parking lot – nothing. Thus – this is another example of blank space as “boilerplate.” If there are other leasable premises at the property, then it would be unreasonable for the tenant to be responsible for anything other than the inside of its space. If the lease is a very long term lease or a ground lease, a “boilerplate” form wouldn’t be used. So, in virtually all circumstances where a “standard” lease form would be used, it behooves a tenant’s landlord to see that it is modified to place appropriate maintenance, repair, and replacement responsibilities on the landlord. One needs to address: common areas, roofs, roof decks, exterior walls, sprinklers systems, HVAC systems, plumbing systems (and, where do ‘systems’ end and ‘fixtures’ begin?), electrical systems, floor slabs, and structures. Don’t forget about underground lines (interior or exterior, concealed or exposed).

If relevant, the lease should allocate responsibility for doors, windows, door and window frames, storefronts, and heating, ventilating, and air conditioning systems and its components.

And, don’t think that when the lease says that a “Tenant must maintain, repair, and replace the interior of the Demised Premises,” it is implied that the “Landlord must maintain, repair, and replace the rest of the property.”

Somewhat obviously, the boilerplate: “the leased premises are being delivered in ‘as-is’ condition,” may not be true. This doesn’t matter much in residential leases where the law and the trend of the law require that the leased premises be reasonably safe, habitable, and free from unreasonable defects. On the other hand, such a provision has teeth in the commercial leasing context. The common law is that a tenant takes the property as it finds it, and this lease clause just restates that principle to remind both the tenant and the courts. So, if the tenant doesn’t want to receive the leased premises in “as-is” condition, the lease needs to be drafted differently.

The final sentence of the sample clause is appropriate where the tenant is the sole occupant of the overall property or where the tenant has a special relationship to a particular part of the property, such as when the leased premises abuts a public sidewalk. In multi-tenant projects, the breadth of the obligations sought to be imposed on the tenant is very likely overbroad. By way of example, why would the third floor tenant be responsible for snow removal or the first floor tenant be responsible for the stairways? The “boilerplate” aspect of this clause was recognized by a court in a case where a tenant with this exact clause in its lease was sued by a pedestrian injured in a fall on snow or ice on the sidewalk outside the building. Essentially, the court in that matter held that where more than one tenant in a multi-tenanted building has a lease obligation to keep sidewalks clear of snow and ice, the lease provisions may be ineffective and the court needs to look at who is actually doing the work. Even more interesting was the court’s characterization of the lease as a form lease “probably available at stationery stores,” and its wondering whether all tenants had the same lease.

COMPLIANCE WITH LAWS

BOILERPLATE: The Tenant shall promptly comply with all laws, ordinances, rules, regulations, requirements and directives of all Governmental or Public Authorities and of all their subdivisions, applicable to and affecting the said premises, their use and occupancy, and shall promptly comply with all orders, regulations, requirements and directives of the Board of Fire Underwriters or similar authority and of any insurance companies which have issued or are about to issue policies of insurance covering the said premises and its contents, for the prevention of fire or other casualty, damage or injury, at the Tenant’s own cost and expense.

COMMENT: Notable by its absence, this boilerplate lease clause imposes no obligation on the landlord to comply with law. One might ask: “why say that a party must comply with law,” when the law already says so. The answer is derived from the contract nature of a lease – it would be a breach of this lease if the tenant failed to comply with law. If this breach were material, the tenant would be subject to eviction. Also, the failure of one party to comply with law can put the other at jeopardy. So, making each party responsible for complying with laws and coupling that with a self-help right for each party, would address that problem.

Although captioned as “Compliance with Laws,” the boilerplate provision requires a tenant (but not its landlord) to comply with requirements imposed by a “Board of Fire Underwriters.” I doubt that such a Board will ever visit the property, but a freshly graduated, experience-deficient, recent engineering graduate can sure make up rules about how a tenant or landlord should run their businesses. For that reason, provisions that go beyond a standard having to do with insurability or raising insurance premiums are probably unwarranted “boilerplate.”


ASSIGNMENT/SUBLETTING

BOILERPLATE: The Tenant shall not, without the written consent of the Landlord, assign, mortgage or hypothecate this Lease, nor sublet or sublease the premises or any part thereof.

COMMENT: The common law abhorred infringements on alienability. For that reason, absent provisions or restrictions to the contrary, a tenant can assign its interest in the lease and can sublet all or part of its leased premises. The “boilerplate” provision displayed above shifts almost all of that control to the landlord, especially if the landlord is not barred from unreasonably withholding, delaying or conditioning its consent. On the other hand, from a landlord’s viewpoint, the clause really doesn’t go far enough. It doesn’t prevent a tenant from licensing the leased premises to another, entering into a management agreement or just plain transferring the ownership interests in the tenant-entity to another.

A common concern of a business owner-tenant is the ability to sell the business without requiring its landlord’s approval. Similarly, a tenant may want to restructure itself by changing its entity form or bring in new investors. The sample boilerplate provision does not address those legitimate interests.

The obligation of a landlord to be reasonable when considering a particular transfer to an assignee or subtenant does not obligate the landlord to allow a corresponding change in use. The result will often be that the proposed assignment or subletting will not be practical.


INDEMNIFICATION

BOILERPLATE: The Tenant also agrees to and shall hold harmless and indemnify the Landlord from and for any and all payments, expenses, costs, attorney fees and from and for any and all claims and liability for losses or damage to property or injuries to persons occasioned wholly or in part by or resulting from any acts or omissions by the Tenant or the Tenant’s agents, employees, guests, licensees, invitees, subtenants, assignees or successors, or for any cause or reason whatsoever arising out of or by reason of the occupancy or business of the Tenant.

COMMENT: Notable by its absence, this provision imposes no indemnification obligation on the landlord. And, this “boilerplate” provision cast a wide net. If harm arises wholly or in part because of the tenant’s acts or omissions, the tenant is on the hook to cover its landlord. Thus, where responsibility for the harm is partly the landlord’s, it is the tenant on the line, not its landlord. A typical revision would be to make the indemnification provision a mutual obligation, and then only to the extent the harm resulted from the acts or omissions (where there was a duty to act) on the part of the indemnifying party.

Making a party responsible for the acts and omissions of its invitee is often problematic. After all, a retailer’s customers are the retailer’s invitees even if they are there to visit a shopping center generally. Similarly, a utility company’s meter reader is the landlord’s invitee.


REIMBURSEMENT OF LANDLORD

BOILERPLATE: If the Tenant shall fail or refuse to comply with any of the terms and conditions of this Lease, the Landlord may carry out and perform such conditions at the cost and expense of the Tenant, which amounts shall be payable on demand to the Landlord. This remedy shall be in addition to such other remedies as the Landlord may have by reason of the breach by the Tenant of any of the terms and conditions of this Lease.

COMMENT: The caption is somewhat misleading because the thrust of this boilerplate provision is to give the landlord, but not the tenant, the right of “self-help.” As is common in a “form” lease, the real boilerplate is its silence on the tenant’s mutual right. Another omission is any threshold requirement for notice or a grace period before the landlord (or, if the provision were made mutual, the tenant) can carry out the other party’s obligations at the other party’s expense.


NON-LIABILITY OF LANDLORD

BOILERPLATE: The Landlord shall not be liable for any damage or injury which may be sustained by the Tenant or any other person, as a consequence of the failure, breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or soil pipes, roof, drains, leaders, gutters, valleys, downspouts or the like or of the electrical, gas, power conveyor, refrigeration, sprinkler, air-conditioning or heating systems, elevators or hoisting equipment; or by reason of the elements; or resulting from the carelessness, negligence or improper conduct on the part of any other tenant or of the Landlord or the Landlord’s or this or any other Tenant’s agents, employees, guests, licensees, invitees, subtenants, assignees or successors; or attributable to any interference with, interruption of, or failure beyond the control of the Landlord, of any services to be furnished or supplied by the Landlord.

COMMENT: This is really a disguised insurance issue. Almost all of the contemplated perils and the damage that could be caused by those perils can be covered by adequate property insurance. The question, therefore, is: whose insurance policy should answer for the claim? A lease is not a script for a moral play; it is an economic agreement.

Broadly speaking, an insured’s property insurance is “no-fault” insurance. It is like an automobile collision policy. If your car is in an accident, your own carrier pays to repair the car. You get to argue value with your own carrier. You don’t need to show that the other driver was at fault. In the sample clause above, the same dynamics exist. For example, if a water pipe breaks and a tenant’s property is damaged, it doesn’t necessarily mean that the landlord is responsible. Sometimes, a pipe breaks. Given that a small tenant would be wise to carry property insurance of its own, there really isn’t any reason not to allocate the risk of loss to an insured tenant. So, when reviewing a clause such as the one above, it is wise to realize that its real effect is to require a tenant to look to its own insurance. This provision and a waiver of subrogation lease provision have the principal purpose of barring a tenant’s insurance carrier from seeking to collect from the landlord’s insurance carrier.

That having been said, there is no corresponding logic to shifting the risk of personal injury to the tenant for its landlord’s acts. Also, the sample clause would excuse the landlord from almost any liability with respect to interruptions in utility services or services provided by the landlord. The lease form from which this sample clause came does not obligate the landlord to provide services in the first place. Consequently, in this form of lease, there are no “services to be furnished or supplied by Landlord.” So, at the end of the day, the landlord might never have any liability. Generally speaking, a lease should spell out the services that a landlord must furnish. Those could be: vertical transportation; trash removal; HVAC; common area lights; and the like. As a general principle, the risk of loss should follow the responsibilities unless common insurance coverage would shift the real burden to a party’s insurance carrier without any truly adverse change in that party’s costs or insurability.

As to interruptions to utility services, in most cases such services are delivered to a tenant directly by the utility provider. As a consequence, a landlord can cause damage in basically only two ways – it can cause the interruption or it can delay restoration of the utility service. A common way to address this issue is to abate rent for interruptions lasting beyond a certain period, such as for more than 24 or 48 hours, when the landlord causes the interruption or interferes with restoration of the service.


MECHANIC’S LIENS


BOILERPLATE: If any mechanic’s, construction or other liens shall be created or filed against the leased premises by reason of labor performed or materials furnished for the Tenant in the erection, construction, completion, alteration, repair or addition to any building or improvement, the Tenant shall upon demand, at the Tenant’s own cost and expense, cause such lien or liens to be satisfied and discharged of record together with any lien claims that may have been filed. Failure so to do, shall entitle the Landlord to resort to such remedies as are provided herein in the case of any default of this Lease, in addition to such as are permitted by law.

COMMENT: A landlord is entitled to see that construction work done by a tenant’s contractors does not result in a lien against the landlord’s interest in its property. This boilerplate clause, however, does not limit itself to valid liens and does not give a tenant a time period within which to cause removal of liens caused by the tenant. Also, it doesn’t, by its language, exclude liens resulting from work done by the landlord on the tenant’s behalf.

When discussing this issue, the parties should be aware that the circumstances under which a contractor or subcontractor working for a tenant or a supplier of construction material for a tenant’s project are limited by statute. In a recent unpublished case, Cherry Hill Self Storage, LLC v. Racanelli Construction Company, Inc., A-5727-05T5 (N.J. Super. App. Div. 2007), a court reminded practitioners that a construction lien against leased property can only be filed if the improvement contract had been authorized in writing by the owner of a fee simple interest in the improved real property and that a general provision in a tenant’s lease allowing alterations to be made does not satisfy that requirement.


WAIVER OF SUBROGATION RIGHTS

BOILERPLATE: The Tenant waives all rights of recovery against the Landlord or Landlord’s agents, employees or other representatives, for any loss, damages or injury of any nature whatsoever to property or persons for which the Tenant is insured. The Tenant shall obtain from Tenant’s insurance carriers and will deliver to the Landlord, waivers of the subrogation rights under the respective policies.

COMMENT: This sample clause covers two related points: (a) it intends to act as a tenant’s waiver of the right to recover from its landlord for anything that the tenant, itself, has covered by insurance; and (b) it seeks to bar that same insurance company from stepping into the shoes of its insured-tenant and file its own claim. This formulation is illogical because an insurance carrier, through subrogation, only steps into the shoes of its insured, and, if the insured has no claim, the carrier has no claim of its own to make.

The standard ISO (Insurance Services Office) policy of property insurance allows for and honors subrogation waivers in real property leases. The standard commercial general liability (CGL) policy does not. For that reason, a “waiver of subrogation provision” should be limited to property damage only. Obtaining a document with a “waiver of subrogation” from a carrier is a fool’s errand. The parties should be satisfied with a true copy of each other’s property insurance policy to confirm that the carrier accepts a waiver of its right of subrogation.

Not unsurprisingly, this boilerplate provision is one-sided. Whereas it would have the tenant waive its claims against the landlord, it doesn’t provide for the same result in reverse. There is no logic to this. One should be cautious however, because common pre-printed lease forms, while obligating a tenant to carry both property and liability insurance, do not require a landlord to do the same. On a practical basis, a landlord with a mortgage will certainly be obligated to have such insurance coverages, but if it doesn’t carry them, it would not be obligated to release its tenant from claims even if it were bound by a mirror image of the clause above.

IN CONCLUSION: A lease arrangement is a complicated one. The parties’ respective obligations continue for an extended period of time – years and years. Simply speaking, a lot of stuff can happen and even the best of crystal balls doesn’t see the future very clearly. Don’t take comfort from the fact that the lease form in front of you is a “standard,” commonly used one. Pre-printed shouldn’t mean etched in stone. Form printers need to sell a lot of a single form, not a small number of lots of different versions. That’s called: “designing for the lowest common denominator.” The form doesn’t know the “deal.” It doesn’t know the “property.” It doesn’t know the parties. It isn’t conceivable that the same form can address a situation where the tenant leases an entire property - land and improvements - and also address a situation where the tenant is one of 50 in a high-rise office building. That’s why attorneys are hired – to make the lease match the deal; to help allocate the risks in an appropriate fashion; and to counsel clients on what the lease says and doesn’t say. “Boilerplate” is handy. Without it, we’d be reinventing the wheel each time. But, “boilerplate” is a trap as well – simple, convenient, but faceless.


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