Many commercial landlords often find themselves litigating the terms of a lease agreement to obtain a recovery against a tenant that has defaulted. To increase the likelihood of succeeding against a tenant that has defaulted, the following three provisions should be included in the lease agreement:
- Acceleration Clauses – these clauses are very important especially for long-term lease agreements. Acceleration clauses allow a landlord, upon default of the tenant, to accelerate and immediately demand payment in full of the tenant’s rental obligation under the lease for the remaining term of the lease following the default. Without an acceleration clause, a cause of action to recover unpaid rent will have to be brought periodically as payments would become due or at the end of the lease term.
- Personal Guarantees – in connection with renting a commercial space to a corporation, partnership or limited liability company, a unconditional guarantee by the principal of the tenant-entity is a must have. A guarantee by the principal allows the landlord to recover rent due from the owner of the company generally without having to proceed against the company first. If your tenant is a business entity with no assets, and a default occurs, without a personal guaranty, any judgment obtained for rent, costs, etc. will not be recoverable. The personal guarantee provides additional security for payment to the landlord.
- Attorneys’ Fees – to ensure that you can recover the attorneys’ fees you incur in connection with litigation or curing a default by a tenant, the lease agreement must specifically provide the right to recover attorneys’ fees and costs. To the extent that the tenant will agree to a clause that allows a landlord to recover fees and costs, without a right of reciprocal recovery to the tenant, this is a more favorable position for the landlord. Otherwise, the clause should provide for the right of the prevailing party to recover attorneys’ fees and costs. Without this clause, New York State Courts disfavor awarding them to any party.
We have several attorneys on staff that can review your commercial lease agreement to provide you with suggestions on improving and/or updating the provisions contained therein.