Dos & Don'ts

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When drafting your leases, put all definitions of lease terms in one place, such as a glossary at the front of the lease or an index. This should help make your leases easier to read and understand.

When drafting leases or lease amendments, use the terms “landlord” and “tenant,” rather than “lessor” and “lessee,” to avoid confusion, suggests James V. Persino, a Chicago-based commercial property developer. It's difficult to confuse or mishear “landlord” and “tenant,” as opposed to “lessor” and “lessee,” especially if you aren't familiar with legal terms.

You may be negotiating a lease with a tenant that plans to operate a restaurant it considers “upscale.” And this tenant may demand that you give it an exclusive that restricts you from renting space in your center to any other “upscale” restaurant. But if you agree to bar this type of restaurant from your center, you may end up restricting the number of tenants you can rent to more than you anticipated. Plus, you may be setting the stage for a potential dispute with the “upscale” tenant, warns Chicago real estate attorney Carole L. Pechi.

Install security cameras not only to help you deter and catch criminals, but also to help you prove to a court whether or when a dangerous condition existed on your property. That's important because the length of time a dangerous condition has existed on your property where an accident occurred is a consideration in determining whether an owner acted reasonably. If the dangerous condition existed long enough so that you should have known about it, and you did nothing to make the area safe, the court is more likely to find you at fault for an injury.

Be especially diligent about maintaining and repairing elevators in your building. Accidents caused by malfunctioning elevators may expose you to greater liability than typical accidents on your property. That's because the “reasonableness” standard doesn't apply; rather, a heightened standard applies. This means that you must frequently check elevators on your property for problems and repair them immediately. You can be held liable for elevator defects that you knew or should have known about.

If you don't maintain any control over your property, don't assume that fact will shield you from liability for an accident. It is uncommon for out-of-possession owners to win liability cases with this argument. For example, if you are aware of a dangerous condition or there is an incident of gross negligence at your property, it won't matter that you don't have much to do with day-to-day operations.

Don't assume that the tenant—and not you or your property manager—is responsible for providing safety devices, such as ladders, to contractors that tenants have hired to do work at your building. If your state law allows you to designate in the lease that the tenant has this responsibility, then the tenant—not you—will be liable for negligence regarding safety equipment. Otherwise, you may end up in a case where it's difficult to tell who is liable when a contractor is injured when using safety devices—like ladders—that are not his property.

Even if you believe your municipality is responsible for maintaining the sidewalk outside your building, it's a good idea to keep the sidewalk in a reasonably safe condition for pedestrians and exercise “reasonable care” to guard them from injury. An injury on the sidewalk may give rise to a case that reveals you have more responsibility for maintaining what you considered to be a public space than you thought.

A tenant that moves out before the lease expires may create costly problems for you—namely, finding a replacement tenant. Despite the breach—and the aggravation and cost it has caused for you—the tenant may try to recover its security deposit. That is what happened to a New York owner who, fortunately, had protected himself from such a situation by including a security deposit clause in the lease.

Most commercial leases contain an indemnification clause specifying whether and for what amount of money a tenant and owner must indemnify one another when they are sued. A lease may also include an insurance procurement clause that requires the owner and tenant to insure specific areas of the property. However, you shouldn't argue that, regardless of the terms in the indemnification clause, you are not required to indemnify your tenant for accidents that occur in the areas that the tenant is responsible for insuring.