For many years, commercial leases - business leases for office, retail,
store, shopping center, professional, medical, warehouse, and industrial
space - consisted mostly of standard clauses and were generally no longer than 20 pages. That is no longer the case. In
the early 1980s, in response to dramatic shifts in the economic environment,
commercial leases rapidly morphed into huge and sophisticated documents
which quickly became known as "killer leases." Many extend
to more than two hundred pages.
While these "killer leases" still cover the subject matter
included in the older forms, they do so with a depth, subtlety,
and craftiness which had not been seen before. They now include
new and complex concepts and come with long exhibits, schedules
and appendices, such as work letter agreements and construction
"Killer leases" were initially a New York City phenomenon,
but they have now taken up residence in many other parts of the
country. Reflecting the economic realities of most commercial leasing
transactions, these documents are usually drafted to shift the landlord's
costs and risks onto the tenant, while at the same time extracting
profits (often subtly hidden) for the landlord. They are dynamic
instruments which cross many business dimensions and incorporate
multiple business and professional disciplines.
All too often, business entities leasing commercial space for the
first time or reorganizing their older leasing programs, whether
in New York City or any other major commercial and financial center,
do not fully grasp the ramifications of these "killer leases."
Because of their extreme complexity and subtlety (not to mention
their extreme length), they have the potential to subject the unwary
tenant, or even its affiliates, to local jurisdiction or "doing
business" responsibilities, tax and regulatory obligations,
and other liabilities in ways the tenant never contemplated. For
example, a parent company guarantee issued from another state or
country to secure a lease might cause "doing business"
impacts on the non-tenant entity. Leases can be serious tools for
cash flow and financing and are often "hell or high water"
financing instruments securing imbedded loans or other funding obligations.
Depending on how it is drafted, a single lease might be a major
asset or a frightening liability. It can provide for or deny a workable
exit strategy. It can facilitate or become an impediment to mortgage
or other financing transactions. It can even completely block the
sale or transformation of a business.
Commercial leases can profoundly affect both daily and long-term
business operations, and they can determine the ultimate financial
fate of entire business entities. Clearly, the understanding, negotiation,
and drafting of commercial leases is of vital concern for businesses.
This is no "do-it-yourself" project. Proper professional
attention and expertise is absolutely required to guide a tenant
through the complex negotiation and documentation of today's "killer