Five Common Landlord Mistakes: Overview of Key Lease Provisions

Owners of residential and commercial property must be careful in preparing and signing leases with tenants.  Beyond the dollars and cents of the agreement and the income or financial statement analyses, an owner must consider how to protect themselves before, during and after the term of the lease.  This overview of commercial and residential leases highlights several common mistakes made by property owners when leasing to a tenant.   This overview addresses these issues directly, but is not an all-inclusive summary with respect to important issues facing a residential or commercial landlord.  Leasing and contract preparation requires expertise—from the owner, from outside consultants and preferably from an experienced real estate attorney.   While the author has substantial legal experience in real estate and leasing matters, this article should not be construed as formal specific legal advice to the reader, nor should the reader consider the author to be his/her attorney solely on the grounds of having read this article.  Every owner, every tenant and every lease is unique and advice for particular circumstance really does require individual review and consideration.

Legal disclaimers aside, an owner who wants to protect themselves from potential liability and attorney’s fees (not to mention administrative headaches), should consider the issues detailed below with respect to the following 5 lease provisions, which commonly lead to substantial landlord mistakes: 

1. Use Limitations

Overview:  While the intended use of the property has undoubtedly been considered well in advance of the signing of the lease agreement, it is essential that an owner include detailed limitations on the tenant’s rights to use the premises.  Due to assumptions, prior informal conversations and failure to consider potential ramifications, an owner may overlook this important portion of any lease.

Commercial Lease:  A commercial lease should accomplish 4 things with respect to use of the property:

(1)    Spell out the sole permitted use of the property by tenant.  The lease should state simply what the property is to be used for (ex: retail clothing and apparel store, fast-food restaurant, general non-retail office space).  Regardless of oral understandings, prior use or anticipated current use, the lease should bind the tenant to the designated use.

(2)    Detail specific limitations to the use.  The lease should spell out specific disallowed uses, which the owner wants to avoid on the property, that may typically arise in connection with the intended use (ex: no retail activity, limitations on signage or window usage, limitation on number of employees in office, prohibition on style of restaurant service, specifications regarding delivery hours, procedure and location, etc.)