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Lease Risk Management: Stop Signing Boilerplate Rental Leases

If you have not actually read your lease, you are in the majority of commercial tenants that have skipped this part of their business. In fact, if you did actually read the thick document you likely skimmed over the parts that really matter if things go bad, i.e. indemnity clauses, insurance, exclusivity clauses, and personal guarantees. It is common to find tenants only after the fact start going through the provisions of the agreement to see whether the landlord is responsible for fixing X, whether the tenant can sublease, or whether the tenant can prevent a competitor moving into the same complex.2013-03-04 12.32.15

These lease agreements are some of the worst legal documents as they are puzzle pieced together over years of monkey-see and monkey-do. Rarely does the landlord or its attorney take into consideration proper allocation of risks with insurance and indemnification clauses; often it is just easier to assign liability to the tenant even where the tenant has limited control to mitigate the harm the tenant is charged with liability.

Having a GREAT experienced insurance agent is key in this respect as it will aid in deciding proper coverage for both tenant and landlord even where the tenant is paying the premium. Also is important is having a GREAT broker to understand the market and to push the limits in negotiation. Having a GREAT attorney is that nail in the coffin that ensures limited liability. The attorney will be responsible for ensuring that these other advisers do their job well by asking questions as to how risks have been shifted through indemnification clauses or whether there is a waiver of subrogation included in the so-called “boilerplate” rental agreements.

Personal guarantees can have grand consequences in worst case scenarios  Often brokers who are unable to negotiate out of a PG will not dive into the PG itself in ensuring that the personal liability is limited to what is necessary. If you have to sign a personal guarantee, there are some small changes that you can make that can at lease minimize its effect.

Nasir Pasha, Esq.

Post by:

Managing attorney and co-host of podcast Legally Sound | Smart Business

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