Key Lease Default Provisions for Commercial Landlords

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Post on 05-Dec-2014




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Article in the Colorado Real Estate Journal that analyzes key commercial lease default provisions form the landlord perspective.


<ul><li> 1. fumwffi&amp;mmffiffiKe&amp;mW Keylease provisions default f t is more important than three.days, all ment of rent. It is unwise for I eve{, given the increasing prior to com: landlords to delete abandon- I- rate of commercial tenant mencing the ryent default provision from defaults and evictions, for land- eviction pro- their leases. Additionally, the lords to structure the default cess with- the often-requested rhodifiiation and remedies provisions in their appropriate conditioning abandonment leases with the serious possibil- court. default on nonpayment of ient ity of tenant default iir mina. Landlords is inadvisable, is"it defeats the Properly drafting and negotiat- can solve purpose of an abandonment ing these provisions is especially this problem default provision. Nonpayment important for out-of-state land- -an by provid- of rent already will be event lords operating in Colorado, Justin Pless- ing that any D. of default unher anv lease. Bv who may.not be familiar with Attorney,Pless Law notice of non- FirmLLC, Denver conditioning abandontn"ttt Colorado stafutes and. case law payment of default on the occurrence of J.S. CPA and advisory firm affecting a landlord's rights, in rent, required another default (nonpayment of the event a tenant defaults and under the lease, will be deemed rent) the abandonm^enl default leep understanding of may need to be evicted from the the same as the notice required provision is essentially ren- rr businessand you. So you leased premises. Careful atten- by Colorado statutes, and not in dered moot. usinessto the next level. tion to thg key lease provisions addition to it. The inclusion of Also, abandonment of the discussed below can bxpedite a ' this language allows landlords leased premises a{rd/or discon- landlord's abitity to rdcapture to accommodate requests from tinuance of business operations and lemarket leased space^from tenants for written notice before in the leased premisel by ten- a defaulting tenant and increase nonpayment of rent becomes a ants is a signihcant concern in a landlord's ability-to recover default, while still preserving retail leases. This concern tvpi- ryoney damages fbr breach of the ability to promptly coml cally will not be addretr"d'u, the lease. mence eviction proceedings and a simple default provision, but .l Requirement for notice retake possession of the leased rathei by either d "Continuous of nonpayment of rent. premises in the event a tenant Operations" provision in the Nonpaymentof rent by a ten- "fails to pay rent. Additionally, lease, requiring a tenant to con- ant alwavs will be a default in order to avoid any ambiguity duct normal businerss opera- under any lease, corrurrercial or and potential delays, landlords tions within the leased frem- residenti6f howeveq, it is com- should structure this provision ises, or a "Go-Dark" 'provisien, mon for'commercial landlords in such a way that nonpayment granting .a tenant thr! right to to allow for a notice period, of rent by u tenant is an imme- cease its business ope:ratiorts in typically three to five- days, diate default, and anr notice the premises. before nonpayment of rent period provided'in the lease I Tenant liability for lost becomes a defaultbv the tenant. will be a period during which future rent. Most commercial Additionally, Colorido eviction the tenant can cure that default. leases in Colorado als</li><li> 2. i 1 TE JOURNAL - June3-June16, Z0A9 Law "&amp; Continued from Pagel.8 discussed above, landlords can an affiliate or successor entitv of wffi 'P.zd 379, 382 (Colo Ct. saifely cofiunence eviction pro- Inaestmentsa. Depot, lnc., 694 ceedings against a defaulhng App. tenant, without being deemed 1884).For example, withorrt'u to have terminated "the leaie the origi4al tenant. Landlcirds would be unwise to release the origi4al tenant from liabiliff in this instance. While the l6ase specific provision in the lease and potentially losing the right may contain iret-worth or cred- Building Services to the contrary if a landlord to col-lectdamages foilostfutilre itworthiriess requirements for delivers the statutory three-&amp;ay rent from the defaultirg tenant. any permitted transferee, the btii tai ng keeps worki ng notice and comrhenies evictioir you can take one off. landlord is not gualanteed of proceedings against a default- the future financiil performance nbing i Refrigeration irg tenant, under Colorado law, the lease will be deemed These provisions of any such entify, and so is best :rvice terminated when the.tenant is rnustbe carefully served by keeping the orisinal tenant on the hooi, shouli the ttenance evicted, and the landlord likelv will lose its right to collect daoi- " draftedbecause permitted transferee default. rcement Retrofit / ages from the tenant for future Colorado courtswill ,$.d{itionally, tenants often r/Cleaning/Jetting will request a rel'ease from lia- lost rent. strictlyconstrue l / Budgeting This result can be avoided bv 'ongoingliabilityl bility at the time a landlord - gives its consent to an. assign- onmental Upgrades inclgding specific_ language iir the_lase,stating that the land- provrslons agarnst ment or.sublease. Tenants often will argue that"if the landlord lord has the option to terminate landlord-s. consents to the.transfer, then the the tenant's right to possession landlord has determined that of the leased fremisirs without VONMANEE termihating the lease, and thaf I Maintaining tenant liabil- the transferee is acceptable as a tenanf and so the oiiginal ten- I{E SENVIEES regardlessof any termination of ity after a transfer. While not ant should no longer-be liable the right of posiessiorytfre ten- a default provision per se, rnost for performelnce o"f the lease. ant will remain liable for.ongo- cofiunercial'leases will provide Landlords should be warv of epingyour environment ing payment 9f rent pursuanfto that in the event of an'assign- releasing original tenants ftortt &gt;ductive hours a day 24 the lease.Such a provision also ment oI the lease, or a subleXse liability in these circumstances should include language per- of some or all of the leased mitting the landlord to"retake " as well because, again, there is prernises, the original tenant will no guarantee that a new ienant and relet the leased premises remain liable for all obligations will remain financially sound. -impor- after the tenant's right to pos- under the lease, most I Conclusion. For iandlo.rds, sessionhas been teiininateh. lt tantly payment of rent. This there is no better protection is important to note that these provision is important because against tenant defaults than provisions must be carefully it provides an additional ave- careful selection of tenants and drafted becausb Coloradocourfs nue for recovery bv landlords collection bf adequate securitv will strictly construe "ongoing -provisions should the assigrt6e or sub- deposits and lett-ers of credii. liability" ag"ainSi tenant default. Eisentially, ,*1g Ofteru in a lease default situa- landlords. See GTM lnaes{ments, original tenant takes on the role tiory a tenant already may be. 694 P.zd at 382. Further, land- of a,guarantor of performance insolvent or have fiied b"ank- lords: also must be aware that by the assignee or subtenant. ruptcy, and the best a land- sudr provisions will not-relieve The guarant6r obligation of the lord can hope for is to quickly thembf their duty to attempt to original tenant, in this situa- recapfure and remarket the mitigate their damages from a tion, reduces the landlord's risk leased premises. However, by tenant default by using reason- that it will be unable to recover paying careful attention to th-e able efforts to ielet tlie leased money damages in the event provisions aird considerations premises. the new tenant defaults and has discussed above and drafting - Moreoveq, to avoid any poten- become insolven! or otherwise leases with the .possibility oT...</li></ul>