July 15th, 2011, By Dana Haugh
In a typical lease negotiation, the parties, the attorneys and the brokers focus only on the key financial aspects within the lease document. However, there are subtle and seemingly innocuous clauses that can cost the tenant a pretty penny long after the lease has been signed. Here’s a quick list of 5 Dangerous Lease Clauses:
1. THE USAGE CLAUSE
Landlords can use the Usage Clause to narrow the permitted uses of a space in such a way that the tenant may not be able to sublease. For example, if an insurance company is renting an office for claims processing, a sharp landlord’s attorney may stimulate that the permitted use for the space is “insurance claims processing.” Although this accurately describes the initial tenancy, it quite effectively inhibits the ability of the insurance to sublease to anyone other than a competitor!
The Usage Clause is something we never overlook. We recently represented a lumber company in the acquisition of 150,000 sq. ft. of warehouse space. The landlord’s attorney had inserted in the lease that the usage of the space would be specifically for that of a lumber company. We advised our client that this was totally unacceptable! This was a warehouse- and should we need to sublease, should be able to be used for any standard warehouse purpose.
We prevailed and the Usage Clause was changed to “warehouse.” The landlord was protected within the rules and regulations of the lease from usages of the space that would devalue the building, such as the use of hazardous materials. Thus, BOTH parties were protected.
In YOUR next lease negotiation, make sure to keep an eye out for the Usage Clause…