Shroyer: Lease important to good landlord/tenant relationships

It all begins with a quality lease. The relationship between landlord and tenant is governed by the lease. Landlords are encouraged to invest into a quality and thorough lease document. The lease should be written in clear language representing both tenant and landlord rights. It is a good idea for landlords to not only look at standard tenant/landlord lease language, but also case precedent, that is a result of litigation or lawsuits.

Biases easily enter into this discussion but my recommendation is that if a particular matter of law, including numerous cases regarding a certain point of tenant/landlord law — resulting in a particular outcome (typically in favor of tenant or landlord in court), then those areas of the lease could be worded according to case precedent.

Understanding the lease. Some landlords, and more often tenants, enter into a lease without understanding all it represents. This is a primary area of disconnect between tenants and landlords. Matters of the real estate business, real estate law, tenant/landlord rights, are a big topic and cannot be digested in a short period of time. However, not investing into a good quality lease and its understanding, is a primary contributor to tenant/landlord relationships falling apart.

Commercial leases. Business or commercial leases are governed by different laws than residential tenant/landlord leases. It is not uncommon for the two to get combined, particularly depending upon which side of the lease you are on. Between residential and commercial leases there is a wide variance on law, particularly in the event of the tenant being in default and the legal remedies available for both tenant and landlords.

Communicate and document. If deviations from the lease are necessary, they should be discussed, negotiated and documented proactively. If a landlord is making a change to a lease, the change should be discussed proactively, proposed, negotiated if appropriate, agreed to and then documented. If, for example, a tenant is going to have a slow summer and requires some form of concession on lease payments, the request should be presented to the landlord in advance of the need. Communications and documentation are another primary area of disconnects between tenants and landlords.

Property maintenance and triple-net expenses. Most commercial leases today are triple net (NNN) leases indicating that expenses such as property taxes, privilege tax, maintenance, irrigation water, services external to the facility, landlord insurance, parking lot maintenance are considered triple-net expenses. These services are typically managed by the landlord (or its management company), paid for by the landlord, and then on a prorated basis (primarily based on square footage, but also somewhat prorate by usage), the landlord charges the triple-net expenses to the tenants.

 

It is good for tenants and landlords to have a clear understanding on what is included in these fees, and landlords should specifically break down all expenses and how they are prorated per tenant. This conversation is also useful to the tenant and landlord in determining the difference between structural or external to the facility services (landlord responsibilities), versus services or management of what is in the tenants suite (tenants responsibility).

 

What can tenants do to help. Know your lease. Make the investment to understand it, negotiate where applicable, and only sign that which you understand and plan to adhere to. If you are new or relatively new to leases it is strongly recommended to seek professional help. Discussions with friends may or may not be helpful. There are many avenues. Small Business Administration consultants, real estate professionals, attorneys can all provide quality counsel. Know your landlord. Some landlords prefer to receive a check every month and otherwise would rather not hear from the tenant. Some landlords appreciate updates on how the tenant’s business is doing and what challenges the tenant faces. This scenario varies widely. It isn’t a matter of right or wrong but tenant landlord relationships vary widely — find the relationship that appears to fit your needs (both landlord and tenants) the best.

What can landlords do to help. Know your lease. Know tenant landlord rights and law. Communicate expectations clearly. Consider marketing and services allowances, particularly in challenging economic times. Encourage tenants to market their businesses in ways that have proven successful in a given market. Keep the premises to a high standard (clean, secure, well-maintained). Be responsive to tenant concerns and questions. Whether direct or through management, have avenues for tenants to ask questions.

If either a tenant or landlord believes his or her legal rights are being infringed upon, find out. If there is a change that is required or requested, do it formally and in writing. If either the landlord or tenant is in default, know what your rights are and what to expect.

Have respect for the law. None of us individually write the laws but all of us should live within them. Sometimes it may not be seem fair; sometimes it may seem personal. Often times it is much more routine, within the law, and much less personal than it may appear.

Understanding the lease and appropriate tenant/landlord law, making efforts to communicate, respecting each other rights and making every effort to live within the boundaries of the lease and laws will in a very measurable way reduce the potential tension and disconnects between tenants and landlords.