Key Provisions of a Real Estate Lease Agreement

You've bought the building, and now you are ready to start leasing the individual units. You might be a prospective tenant, ready to take the plunge. You need a lease agreement to govern the relationship between landlord and tenant. Here are some of the key provisions that you will encounter in the lease agreement, with annotations and best practice on what can and should be negotiated.

Description of the property: The lease agreement should include a description of the property being leased, including the address and any relevant unit or apartment numbers. It is best practice to specify the size of the leased premises, including the total square footage and the dimensions of each room or area - this is usually done by including an exhibit, annexed to the lease, to indicate the portion of the building leased to the tenant.

Lease term: The lease agreement should specify the start and end dates of the lease, as well as any renewal options. Many leases include a "Commencement Date" indicating when the lease commences. The commencement date is separate from the "Rent Commencement Date," which sets forth the date (or occurrence) that triggers the payment of start of tenant's responsibility to start paying rent.

Rent and security deposit: The lease agreement should specify the amount of rent due, when it is due, and how it should be paid. It should also specify the amount of the security deposit required and any conditions for its return. Here are some tips for setting forth the rent in a lease agreement:

1. Amount: Specify the amount of rent that the tenant is required to pay, including the frequency of payments (e.g., monthly, quarterly, annually). This is typically included as an exhibit at the end of the lease agreement.

2. Due date: Indicate the date on which rent payments are due, as well as any grace period or late fees for late payment.

3. Payment method: Specify the method by which rent payments should be made, such as by check, electronic transfer, or cash.

4. Security deposit: If a security deposit is required, specify the amount of the deposit, the conditions under which it will be returned to the tenant, and any deductions that may be made from the deposit.

5. Rent increases: If there are provisions for rent increases during the lease term, such as a rent increase after the first year of the lease, specify the conditions under which rent increases may occur and the amount of the increase.

6. Utilities: Indicate which utilities, if any, are included in the rent and which utilities the tenant is responsible for paying.

7. Late fees: Specify any late fees or penalties for late payment of rent.

8. Proration: Clarify the proration of rent if the tenant moves in or out of the leased property in the middle of a billing period.

Maintenance and repairs: The lease agreement should specify who is responsible for maintaining and repairing the property, including any appliances, fixtures, or utilities. Here are some tips for setting forth the maintenance and repairs provisions in a lease agreement:

1. Landlord's responsibilities: Set forth the maintenance and repair responsibilities of the landlord, such as repairing structural issues or making major repairs to the property. The landlord is typically responsible for the structures behind the walls.

2. Tenant's responsibilities: Clearly specify the maintenance and repair responsibilities of the tenant, such as keeping the property clean and reporting any issues to the landlord in a timely manner.

3. Maintenance schedule: Specify a maintenance schedule that outlines regular maintenance tasks and who is responsible for performing them. This could include tasks such as cleaning gutters, changing air filters, and maintaining landscaping.

4. Reporting requirements: Establish reporting requirements for maintenance and repair issues, including how the tenant should report any issues to the landlord and the timeframe in which the landlord is required to respond.

5. Emergency repairs: Specify the process for emergency repairs and who is responsible for paying for them.

6. Alterations and improvements: Specify whether the tenant is allowed to make alterations or improvements to the property and under what conditions.

7. Condition of the property at move-in and move-out: Establish the condition of the property at move-in and move-out, including any necessary repairs or cleaning that the tenant is responsible for.

8. Notice requirements: Specify any notice requirements for maintenance or repair issues, such as how far in advance the landlord must give notice before entering the property for maintenance or repair.

Use of the property: The lease agreement should specify any restrictions on how the property can be used, such as prohibitions on subletting or running a specific business from the property. Here are some tips for setting forth the use provisions in a lease agreement:

1. Permitted uses: Clearly specify the permitted uses of the leased property, such as residential or commercial use, and any restrictions on those uses.

2. Prohibited uses: Specify any prohibited uses of the leased property, such as using the property for illegal activities or activities that may cause damage to the property.

3. Subleasing: Specify whether the tenant is allowed to sublease the property and under what conditions.

4. Nuisance and noise: Establish rules regarding noise levels and other potential nuisances, such as hosting large gatherings or playing loud music.

5. Damage to property: Establish the tenant's responsibility for any damage to the property caused by the tenant, guests, or invitees.

6. Assignment and transfer: Establish the conditions under which the tenant is allowed to assign or transfer the lease to another party.

Termination and eviction: The lease agreement should specify the conditions under which the landlord or tenant can terminate the lease early, as well as the process for eviction if the tenant breaches the lease. Set forth termination and eviction provisions in a lease agreement as follows:

1. Termination of lease: Establish the conditions under which the lease may be terminated, such as expiration of the lease term, mutual agreement of both parties, or breach of lease by one of the parties.

2. Notice of termination: Specify the required notice period for termination of the lease, including the process for delivering notice.

3. Early termination: Establish the conditions under which either party may terminate the lease early, including any penalties or fees for doing so.

4. Eviction process: Specify the process for eviction in the event that the tenant breaches the lease, such as non-payment of rent or violation of lease terms.

5. Notice of eviction: Establish the required notice period for eviction, including the process for delivering notice.

6. Right to cure: Specify any right to cure provisions, which allow the tenant to cure any lease breaches before eviction proceedings begin.

7. Abandonment: Establish the conditions under which the landlord may consider the property abandoned and may take possession of it.

8. Return of security deposit: Specify the conditions under which the security deposit will be returned to the tenant, including any deductions that may be made.

SNDA (Subordination, Non-Disturbance, and Attornment): When setting forth the subordination provisions in a lease agreement, it is important to establish the priority of the lease agreement in relation to any other existing or future liens or encumbrances on the property. Here are some tips for setting forth the subordination provisions in a lease agreement:

1. Subordination clause: Include a subordination clause that establishes the priority of the lease agreement in relation to any other liens or encumbrances on the property.

2. Existing liens and encumbrances: Specify any existing liens or encumbrances on the property and how they will be treated in relation to the lease agreement.

3. Future liens and encumbrances: Establish how future liens or encumbrances will be treated in relation to the lease agreement, including any provisions for notice and subordination.

4. Notice requirements: Establish any notice requirements that must be met before the lease agreement can be subordinated to any other liens or encumbrances.

5. Waiver of priority: Specify any circumstances under which the landlord or tenant may waive the priority of the lease agreement in favor of other liens or encumbrances.

6. Mortgagee protection: Include provisions to protect the mortgagee's interest in the property in the event of default by the landlord or tenant.

7. Attornment: Specify any requirements for the tenant to attorn to any new landlord in the event of a sale or transfer of the property.

Insurance: Tenant is sometimes (but not always) required to obtain insurance with respect to the demised premises. Here are some tips for setting forth the insurance provisions in a lease agreement:

1. Insurance requirements: Specify the types of insurance that are required, such as liability insurance, property insurance, or worker's compensation insurance.

2. Coverage limits: Establish the minimum coverage limits for each type of insurance required.

3. Additional insured: Specify whether the landlord or other parties need to be named as additional insureds on the tenant's insurance policies.

4. Waiver of subrogation: Include a waiver of subrogation provision, which prevents the insurance company from seeking reimbursement from the other party in the event of a loss covered by insurance.

5. Proof of insurance: Establish the requirements for the tenant to provide proof of insurance, including the process for delivering proof of insurance to the landlord.

6. Notice of cancellation: Require the tenant to provide notice of any cancellations or changes to insurance coverage.

7. Tenant responsibilities: Establish the tenant's responsibility for any damage or loss that is not covered by insurance, such as deductibles or exclusions.

8. Landlord responsibilities: Specify any insurance requirements or responsibilities of the landlord, such as maintaining property insurance or providing liability coverage for common areas.

Casualty & Condemnation: What happens in the event that the leased premises is the subject of a casualty or condemnation? This provision tells you all that you need to know. ere are some tips for setting forth the casualty and condemnation provisions in a lease agreement:

1. Casualty clause: Include a casualty clause that outlines the rights and responsibilities of both parties in the event of damage to the property due to fire, flood, or other natural disasters.

2. Obligations after casualty: Establish the obligations of the landlord and tenant after a casualty event, such as the landlord's obligation to repair the property and the tenant's obligation to vacate the premises during the repairs.

3. Rent abatement: Specify whether the tenant is entitled to a rent abatement during any period when the property is unusable or under repair.

4. Condemnation clause: Include a condemnation clause that outlines the rights and responsibilities of both parties in the event of a taking by eminent domain.

5. Termination rights: Establish the rights of both parties to terminate the lease in the event of a taking by eminent domain, including any notice requirements or compensation provisions.

6. Disposition of awards: Specify how any condemnation awards will be distributed, including any amounts for damages to the tenant's property or business.