air lease assignment form

Items to Negotiate in the AIR Standard Lease Form

(The AIR lease form should be carefully reviewed to address missing provisions and to clarify existing terms to avoid costly disputes.)

THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION provides some of the most widely used commercial real estate lease forms in California. Many landlords and tenants—and more important their brokers—favor using these forms because they help get the deal done fast and cheap—concepts that deal makers may perceive to be anathema to attorneys. Often, the parties simply fill in the blanks on the front cover of the lease form, draft a short addendum to address issues specific to their deal, perhaps scoff at the notion of needing attorneys, and then sign the last page. The parties rarely revise the language in the lease. After all, it is the standard form.

Over the years, however, landlords and tenants faced with lease disputes have discovered that what is one landlord’s standard is not necessarily another’s, and more important, what is one landlord’s standard is not the tenant’s. Moreover, landlords and tenants have discovered that the lease form does not address all the issues that they should be concerned about, and in some cases, even when it does, it does so in ambiguous ways. For these reasons, parties to a lease should specifically discuss certain issues before using the AIR Standard Lease form. [1]  

One issue on this standard form is the commencement date. Parties should look beyond Paragraph 1.3, Term, which provides a blank to be filled in for the commencement date of the term of the lease. Elsewhere in the lease, Paragraph 3.3, Delay in Possession, provides that if the landlord fails to deliver the premises to the tenant by the scheduled commencement date, there is no penalty, unless the landlord delays delivery of the premises by 60 days. If that happens, the only recourse a tenant has is to terminate the lease. This section further provides that if the premises are not delivered within 120 days of the commencement date, the lease will automatically terminate. These two paragraphs can become problems when a dispute arises about construction delays for the tenant improvements to the premises, especially when the landlord is responsible for the work.

In many cases, tenants must move into their new premises by a certain date because they are moving out of existing locations and must do so by a certain date or risk paying holdover rent and other damages. Even if the tenants do not have expiring leases, timing is still critical, since the tenants have already ordered furniture and hired employees. The tenant cannot afford to wait 60 days after the scheduled commencement before looking elsewhere for a new location (which, itself, often takes several months). Tenants therefore have reason to negotiate for the standard 60 days to be reduced. In some cases, the tenant may insist on zero, but most landlords will require some delay time, if not even 60 days.

Discussing the 60-day period does more than diminish the tenant’s timing risk. It motivates the landlord to commit its resources to making sure that the tenant will have access on time. The landlord will not want to risk losing the tenant after spending time and money constructing the premises to suit the tenant’s needs. Since delay will likely cause damages to the tenant, if possible it should also require the landlord to agree to pay the tenant’s damages in the event the landlord delays delivery of the premises. For example, the landlord can agree to pay for the tenant’s holdover damages for its existing location and give the tenant free rent for each day of the landlord’s delay.

In many leases, the commencement date is defined as the date that the landlord achieves “substantial completion” of the tenant improvement work. Substantial completion means that the landlord has completed enough work that the tenant is able to conduct its business from the premises. What remains are “punch-list” correction items (e.g., fixing a doorknob, doing touch-up paint, etc.). When the parties use “substantial completion” to define the commencement date, the language in Paragraph 3.3 must be modified, since it only gives the tenant the right to terminate if the landlord fails to deliver possession of the premises within 60 days of the commencement date, as determined by substantial completion. This circular language is not helpful to a tenant because the landlord will only be in danger of violating Paragraph 3.3 if the landlord substantially completes the work to the premises and then refuses to hand over the keys. This is highly unlikely.

A more common problem arises when the landlord, for a variety of reasons (such as construction delays), fails to substantially complete the work to the premises on the date that the parties intended. In this more likely scenario, the landlord will be permitted to delay completing its work without penalty since the tenant’s 60-day right to terminate is only triggered after the landlord substantially completes the premises, not before. To protect itself, a tenant should demand a fixed date by which the landlord must deliver the premises or give the tenant the right to terminate or collect damages or both.

From the landlord’s perspective, some of these same issues will arise if the tenant is responsible for the work and the commencement date is tied to substantial completion. To avoid the circuitous language, most landlords will want to shift the construction delay risks to the tenant and provide that the commencement date shall occur upon either a fixed date or the date the tenant opens for business, whichever is earlier, regardless of when the tenant completes its construction.

To figure out which party bears responsibility to comply with applicable laws (“requirements” in the most current AIR lease forms), one must first read through a maze of paragraphs in the lease form that contain confounding “subject to,” “except as otherwise provided,” and “notwithstanding” disclaimers. Even if parties or attorneys successfully navigate the lease form, they must consider the two cases decided by the California Supreme Court on the same day in 1994: Brown v. Green [2] and Hadian v. Schwartz, [3] in which the court analyzes two virtually identical provisions in a prior version of the AIR lease form concerning compliance with laws provisions and reaches opposite conclusions.

Paragraphs 2.2, Condition; 2.3, Compliance; 6.3, Lessee’s Compliance with Applicable Requirements; 7.1(a)-(d), Lessee’s Obligations; 7.2, Lessor’s Obligations; and 49, Americans with Disabilities Act; all address the various rights and responsibilities of the landlord and tenant. 4 [4]

Read together, these paragraphs provide that the tenant is responsible to comply with all laws affecting the premises resulting from 1) the tenant’s use of the premises, or 2) any cause (even unrelated to the tenant’s use of the premises) if those laws affect the premises following the expiration of a landlord’s six-month warranty, unless compliance is required during the last two years of the lease term, in which case the tenant will only be responsible for the amortized portion of the cost to comply with laws, amortized over 12 years.

In Brown and Hadian, the California Supreme Court held that despite the fact the tenant expressly agreed to comply with applicable laws, that agreement alone did not encompass the repairs at issue if the repairs qualified as substantial. Therefore, despite contrary language in the lease, a landlord may still be responsible for repair costs. In both cases, the court disregarded the clear and unambiguous language in the AIR lease form. Instead, the court applied a six-factor test for the tenant’s obligation to repair: 1) the relationship of the cost of the curative action to the rent reserved, 2) the length of the term and the time for the cost to be amortized, 3) the relationship of the benefit to the tenant to that of the reversioner (i.e., the landlord), 4) whether the curative action is structural or nonstructural, 5) the degree to which the tenant’s enjoyment of the premises will be interfered with while the curative action is being undertaken, and 6) the likelihood that the parties contemplated the application of the particular law or order involved.

In Hadian , [5] the landlord incurred costs in seismic reconstruction of a building ordered by the city as part of an earthquake hazard reduction program. The court held that the landlord alone was responsible for such costs, notwithstanding a provision in the lease requiring the tenant to, in part, comply with all applicable requirements regulating the use by the tenant of the premises. The court held that the term of the lease and the extent to which the incidents of full ownership of the property are transferred to the tenant are among the most important provisions of the lease to consider in determining whether it is truly a “net” lease. This reasoning suggests that if the lease is a net lease, then it may be held that the parties intended for the tenant to share in such costs. In this case, the term of the lease was only three years, which the court determined was a very short term and would have provided the tenant a limited amount of time in which to amortize the costs of repairs over the life of the lease. The cost of the repairs represented a substantial percentage of the aggregate rent over the term and would amount to capital improvements to the property that would primarily benefit the landlord.

In Brown , [6] the landlord incurred costs in connection with removing asbestos-laden material from a building pursuant to a county order. The court held that the tenant was responsible to reimburse the landlord for the costs. The court found that the term of the lease was long enough to permit the tenant to amortize the costs. The amount necessary to remove the asbestos-laden material was less than 5 percent of the total rent reserved over the 15-year term of the lease. In addition, the lease expressly provided that the landlord was to have no obligation and the tenant all obligation to repair and maintain the premises, whether structural or nonstructural.

What this suggests is that neither landlords nor tenants should assume that merely allocating the risk to one party or the other (even unambiguously) in the lease will be determinative of which party will ultimately bear the risk. The final outcome depends on the court’s six-factor test, but the language in the lease will play a relevant factor in determining the outcome, and the parties should make sure the terms meet their expectations.

In addressing the specific language in the relevant paragraphs, a tenant should resist the requirement that it bear the cost to repair or comply with laws if the compliance is triggered after the landlord’s six-month warranty period expires, especially in a short-term lease in which the substantial benefit of the compliance will inure to the landlord. Also, a tenant should object to the language that gives the landlord the right to terminate the lease if the compliance is caused by reasons outside the tenant’s use. The tenant should not lose its lease for something that the landlord will be required to remedy even after the tenant moves out. A tenant should consider revising the amortization period to apply to the “useful life” of the item rather than the form’s 12-year period. Further, tenants should attempt to delete Paragraph 49 or modify it to state that the landlord must warrant that, at least, the premises complies with disability laws or will by the commencement date.

Audit Rights

Another part of the standard lease that bears examination is Paragraph 4.2 of the AIR office lease forms. It provides a nonexclusive list of operating expenses that the landlord may charge the tenant and lays out a few exclusions. Since the list is nonexclusive, it is assumed that unless excluded, additional items may be charged to the tenant. It has become common practice for tenant attorneys to provide a list of exclusions from operating expenses to ensure that the tenant is only paying for its fair share. Most lists contain reasonable exclusions (e.g., charitable donations made by the landlord, lease expenses with other tenant prospects, entertainment or travel expenses, etc.), but in some cases aggressive tenant attorneys try to include a few substantive exclusions that are not part of the negotiated deal (Proposition 13 protection, preclusion of earthquake insurance, or exclusions of all capital expenditures). In the end, the tenant should ensure that the landlord does not treat the collection of operating expenses as a source of profit. The landlord, in turn, often seeks to make sure that it keeps a consistent list of permitted inclusions in its leases to avoid the accounting nightmare of having items excluded under some leases and included in others.

The AIR lease form does not contain a right for the tenant to audit the landlord’s books and records concerning operating expenses. No case law in California gives a tenant an implied audit right, but it is widely believed that a tenant may compel an audit through discovery following commencement of a lawsuit. At least one case in Maryland holds that a tenant had an implied common law right to audit the landlord’s books when the lease was silent. [7] With this in mind, it is best for both parties to address the tenant’s audit rights in the lease. At a minimum, the audit provision should address 1) the time and manner for requesting and conducting the audit, 2) the qualifications of the person performing the audit, 3) who pays for the audit and whether the tenant is entitled to reimbursement of audit costs if an error is discovered, and 4) confidentiality.

Assignments and Subletting

Paragraph 12, Assignment and Subletting, and Paragraph 36, Consent, address the various rights and obligations of the parties with respect to assignment and subletting. In essence, the tenant is afforded the right to assign or sublet the premises to a third party, subject to the landlord’s reasonable consent. These paragraphs are fairly balanced, but landlords and tenants often seek something other than balance. From a tenant’s perspective, the AIR lease form notably does not allow a transfer to an affiliate without the landlord’s consent. From a landlord’s perspective, the form fails to address recapture rights that give the landlord the right to terminate the lease if the tenant seeks to assign or sublet (especially if the tenant stands to profit from the transfer). The AIR lease does contain a separate addendum that covers limited recapture rights that most landlords like to revise to make unlimited. At first glance it would appear that an unlimited recapture provision and Paragraph 36, Consent-Reasonable, are inconsistent provisions. The California Supreme Court in Carma Developers (California), Inc. v. Marathon Development California, Inc., [8] held, however, that a recapture clause in a commercial lease is enforceable and is not subject to a reasonableness requirement. Assuming that the landlord does not add the recapture addendum, the AIR lease form does not address what happens in the context of a transfer by the tenant for a profit and how the profit will be treated by the parties. Most landlords require at least 50 percent of the profit generated from a transfer. Regardless of how it is split, the profit must be defined. Tenants will want to exclude transfer costs (such as broker commissions, improvement allowances, downtime, legal fees, and so on). Landlords will want to ensure that the tenant is not defining “profit” in a way that avoids having to pay landlords their fair share.

Landlords also prefer to provide in the lease that if the tenant accuses the landlord of improperly withholding consent to a proposed transfer, then the tenant must seek a court injunction to require the landlord to issue its consent rather than sue for damages. Paragraph 12.1(e) provides that a tenant may recover compensatory damages from the landlord in addition to obtaining injunctive relief. Therefore, landlords often want to modify the paragraph to delete that remedy.

Other Issues

The AIR lease form was drafted and paid for by brokers. Therefore, it is no surprise that there are several provisions in the lease form that reward or protect brokers. Some of these provisions include Paragraphs 2.4, Acknowledgments; 15.1-15.2, Broker Fees; and 25, Disclosures Regarding the Nature of a Real Estate Agency Relationship. It is customary for most attorneys, much to the chagrin of brokers, to delete these provisions as superfluous at best and possibly harmful.

For example, Paragraph 15.1 provides that a landlord must pay the broker an additional commission if the tenant exercises its option to extend the term of the lease. If the parties agree to pay the broker this additional commission, then they should say so in a separate commission agreement between the landlord and the broker. This clause has nothing to do with the relationship of the landlord and tenant and should not be part of the lease. Another example is the statute of limitation of one year for either party to bring a claim against the broker arising out of the lease transaction. This has nothing to do with the landlord-tenant relationship and should be deleted.

Security Deposit. Paragraph 5 of the lease provides, in part, the terms upon which the security deposit may be used by the landlord. Landlords must revise this section to avail themselves of the ability to apply security deposits against a defaulting tenant’s future rent obligations. In 250 L.L.C. v. PhotoPoint Corporation , [9] the court ruled that under Civil Code Section 1950.7, upon the termination of a lease, the landlord may not retain the security deposit to cover its damages for future rent owed under the lease (as opposed to past rent). The court explained, however, that a tenant can waive Section 1950.7 in commercial leases, thereby allowing landlords to apply the security deposits toward future rent. Therefore, attorneys for landlords should add a waiver of the protection of Section 1950.7 or any similar, related, or successor provision of law. While the 2006 form has been updated to allow for future rent, the parties should take the extra step of expressly waiving the statute.

Removal and Surrender. Paragraph 7.4(b) of the lease provides, in part, that the landlord can require the tenant to remove its alterations and utility installations provided that the landlord delivers notice not earlier than 90 and not later than 30 days before the end of the lease. Tenants may seek language that the landlord must give tenants notice of the necessity of removal of alterations and utility installations before the tenant makes them. This way, the tenant can determine—before undertaking the anticipated work— whether the improvements make economic sense, after factoring in the cost of removal at the expiration of the lease. In some cases, these costs may be substantial.

Paragraph 9, Damage or Destruction, provides a landlord with the right to terminate the lease if the damage to the premises exceeds six months’ rent. This is an arbitrary figure and not customary in other leases. Depending on the terms of the lease and rent, the parties may review this threshold to suit their deal.

Limitation of Liability. Paragraph 20 of the lease provides, in part, that the tenant will look solely to the project for satisfaction of any liability of the landlord with respect to the lease. When an attorney representing the tenant is faced with a landlord that is not willing to eliminate this provision, the attorney may seek to expressly clarify that the tenant may also look to the rents, issues, profits, proceeds, and other income arising from the project regardless of who the receiver is (e.g., the landlord or its lender), and that the provisions of Paragraph 20 shall have no effect on the tenant’s rights to withhold or offset rents.

Nondisturbance and Attornment. Paragraph 30.3 of the lease provides, in part, that the tenant’s subordination of the lease will be subject to the receipt of a nondisturbance agreement regarding security devices (i.e., ground leases, mortgages, deeds of trust, or other hypothecations or security devices) that the landlord becomes a party to after the execution of the lease. The lease does not address security devices entered into by the landlord before the execution of the lease. The landlord may find it difficult to obtain a nondisturbance agreement from a current lender, but an attorney representing the tenant should request one anyway. Without one, the lease could be terminated upon foreclosure. [10]

Paragraph 30.2 of the lease provides, in part, that if another party succeeds to the interest of the landlord upon a foreclosure, that party will not be liable to the tenant for the prior landlord’s acts or omissions or be subject to any offsets or defenses which the tenant might have against the prior landlord. Although this is a standard provision in most leases, what is the tenant to do if the landlord fails to pay the tenant improvement allowance, if any, or construct the tenant improvements? An attorney who represents the tenant will want the lease to provide that the tenant may deduct from rent the applicable amounts upon such failure by the landlord.

Waiver of Jury Trial. Paragraph 47 of the lease requires the landlord and the tenant to waive their rights to a trial by jury in any action or proceeding involving the property or arising out of the lease. However, in Grafton Partners, L.P. v. Superior Court , [11] the California Supreme Court held that predispute contractual jury trial waivers are not enforceable in California. Consequently, landlords and tenants must resort to alternative methods to handling future disputes. A party (whether a landlord or a tenant) that wishes to avoid a jury trial should add a separate provision in the lease requiring either judicial reference (a process similar to a court trial, which may be appealed) or arbitration (a process that in virtually all cases is nonappealable).

The AIR lease form, while commonly used and favored by brokers, should be carefully reviewed by the parties before they sign the lease to address missing provisions and to clarify existing terms to avoid costly disputes. As much as parties may want to close a lease deal quickly and cheaply, the less costly method may be to involve lawyers at the beginning of a landlord-tenant relationship rather than at the end.

Los Angeles Lawyer January 2007 Los Angeles attorney Nadav Ravid is a partner and the administrative chair of Buchalter Nemer’s real estate practice group.

[1] All references to the form are to the AIR Standard Multi-Tenant-Office Lease-Net (2006), available at http://www.airea.com.

[2] Brown v. Green, 8 Cal. 4th 812 (1994).

[3] Hadian v. Schwartz, 8 Cal. 4th 836 (1994).

[4] Paragraph 2.2 first addresses the issue by providing that the landlord warrants to the tenant that the condition of the building systems and the structure of the building are in good operating condition for 30 days (except for HVAC, for which the landlord warrants for six months), subject to various conditions.

Paragraph 2.3 provides that the landlord warrants to the tenant that the improvements were constructed in compliance with laws for six months. (From a tenant’s perspective, this language also raises a separate issue: The warranty should apply to the condition of the improvements as of the commencement date, not the date the improvements were constructed.) The landlord’s warranty does not apply to compliance of laws (including ADA laws) triggered by the tenant’s use of the premises. If compliance is required because of the tenant’s specific use, then the tenant must pay for it, unless the compliance is required during the last two years of the term and will exceed six months of rent, in which case the tenant has the option to terminate. If the compliance is not required by the tenant’s specific use, and as such is the landlord’s responsibility, the landlord must pay for the cost to comply but may charge the tenant an amortized portion of the cost amortized over 12 years; provided further, that the landlord may terminate the lease if the compliance is triggered during the last two years of the term.  Paragraph 6.3 provides that except as provided elsewhere, the tenant is responsible for complying with all laws.

Paragraph 7.1 provides in essence—subject to Paragraphs 2.2, 2.3, 6.3, 7.2 (among others)—that the tenant is responsible to pay for all costs to repair and maintain the premises unless the item requires replacement, in which case the cost will be paid for by the landlord, and the tenant will be required to pay the amortized portion of the expense over 12 years.

Paragraph 7.2 provides that, subject to Paragraphs 2.2 and 2.3 (among other paragraphs) the landlord is not required to repair or maintain any part of the premises.

Paragraph 49 provides that the tenant is responsible for all ADA compliance, and that the landlord’s warranties do not extend to ADA issues.

[5] Hadian, 8 Cal. 4th 836.

[6] Brown, 8 Cal. 4th 812.

[7] P.V. Props., Inc. v. Rock Creek Vill. Assocs. Ltd. P’ship, 549 A. 2d 403 (Md. Ct. Sp. App. 1988).

[8] Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 4th 342 (1992).

[9] 250 L.L.C. v. PhotoPoint Corp., 131 Cal. App. 4 th 703 (2005).

[10] Dover Mobile Estates v. Fiber Form Prods., Inc., 220

Cal. App. 3d 1494 (1990).

[11] Grafton Partners, L.P. v. Superior Court, 36 Cal. 4 th 944 (2005).

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Understanding AIR Lease Agreements & Potential Pitfalls

If you are an agent dealing primarily with California Association of Realtors’ forms, the AIR lease agreement is likely completely foreign to you. It is important to understand that the CAR (California Association of Realtors) and AIR (American Industrial Real Estate Association) forms vary significantly. If you are in a transaction in which you are using an AIR form, please pay careful attention to the details of the agreement. The AIR forms have been drafted for use by a commercial real estate practitioner. The AIR forms make a lot of assumptions about the professionals that use them, but one should not be intimidated by them. Like any form, you have to pay attention to the details.

For example, often overlooked when using the AIR Lease Agreement for Net leases is the automatic changes that can occur to the base rent. The AIR lease agreement, like most lease agreements, requires a tenant to allow for inspections, as well as provide estoppel certificates when requested. Failure to cooperate with an inspection or an estoppel request, allows the Landlord to increase the base rent by 10% or $100, whichever amount is greater. More importantly, the landlord does not have to provide the tenant any notice or allow the ability to mitigate the failure. This provision is certainly pro-landlord and one that a tenant may not expect when signing a lease.

In addition to the increase in the base rent, the failures previously discussed trigger other provisions in the AIR lease agreement. One such provision is the security deposit provision. Pursuant to the terms of the AIR Lease agreement, any increase in the base rent also requires an increase in the security deposit in proportion to the base rent increase. However, the request for additional monies to fulfill a tenant’s security deposit obligation must be done in writing by the landlord.

These examples only illustrate how important it is for the commercial real estate practitioner to know the AIR Agreement and provide proper guidance to their client. As a side note, the provisions discussed in this post can all be negotiated and deleted from the agreement. However, one must know they are there before you start the negotiation.

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Are the Nine AIR CRE Leasing Forms Better than the One CAR Commercial Lease?

By: Michael Simkin, Esq.

Most California commercial leasing transactions use one of the AIR CRE Commercial Leases (“AIR Forms”) or the CAR Commercial Lease form (“CAR Form”).  The AIR Forms are very inclusive at 20+ pages, are balanced for the landlord and tenant, but may not be the right choice for every commercial lease.  The CAR Form is user friendly at 6 pages, but only covers the basics.  The AIR CRE forms have specific leases for office, single, multi-tenant, ground leases and for shopping centers.  AIR also offers addendums for arbitration, options to extend, rent adjustments, right of first refusal, etc.  The primary difference between the AIR and CAR forms are detailed assignment of responsibility.  

Common issues to consider or modify with the leases include the following :

AIR Forms Lease: Condition of the Premises .  Paragraph 2.2 of the AIR Forms have a common clause for the landlord’s warranty of the premises at the time of leasing.  It states that the existing plumbing, electrical, and heating, ventilation and air conditioning (“HVAC”) systems are in good working order and the structural condition of the building in which the premises is located is free of material defects.  However, this landlord warranty is only thirty (30) days, except for the HVAC system, which carries a six (6) month warranty.  Any problems following the expiration of the warranty period are tenant’s responsibility to repair.  A common modification by interlineation on the form, is to extend the landlord’s warranty for all building systems and/or HVAC for at least one year. 

CAR Form Lease: Condition of the Premises .  Paragraph 11 simply acknowledges tenant has inspected and all is good except as identified in the lease.  CAR is a broker focused organization, so it also provides before the signature page, in a box, a simple statement that the brokers do not guarantee the condition, zoning or provide legal, tax or any; other advice concerning the premises. 

AIR Forms Lease: Security Deposit .  Paragraph 5 provides that if the base rent increases during the term of the lease, landlord may increase the tenant’s security deposit by the same proportionate amount.  This term is fair to the landlord, but some tenants ask to strike that provision.  Paragraph 5 also modifies the “default” commercial security deposit law of Civil Code § 1950.7 in favor of the landlord as to how the deposit can be used if the tenant vacates before the expiration of the lease term.

CAR Form Lease: Security Deposit .  Paragraph 6 also provides that the deposit increases along with the base rent.  The CAR Form may also change the application of Civil Code § 1950.7.  Paragraph 6(B)(iv) provides for the deposit to be used to “cover any other unfulfilled obligation of the Tenant.”  To me that implies the landlord can keep the deposit to pay for future rent if the tenant breaches and vacates before the end of the lease term.  However, the last line of paragraph 6(B) could be read that if only the unpaid rent which was due while the tenant was in possession can be kept by the landlord which is consistent with Civil Code § 1950.7.

AIR Forms Lease: Utility Installations, Trade Fixtures, Tenant Improvements .  Paragraph 7.3 of the AIR Forms allow the tenant to make improvements with the landlord’s consent, or without landlord’s consent, but with notice, if is non-structural or not visible from the outside.  Tenant brokers may want to strike the “with notice” part. 

CAR Form Lease: Alterations .  Paragraph 18 simply requires written consent by the landlord before the tenant makes alterations, which consent cannot be unreasonably withheld.

AIR Forms Lease: Ownership, Removal, Surrender of Premises .  Paragraph 7.4(b) and (c) allow the landlord to require the tenant to remove its alterations at the end of the lease.  However, while the Tenant may have the right to remove its trade fixtures when it vacates, often removing trade fixtures or alterations are an expensive and time consuming hassle.  The tenant may want to strike part of the paragraph so that it can just leave its tenant improvements or trade fixtures when it vacates.

CAR Form Lease: Tenant’s Obligations Upon Vacating .  Paragraph 24 requires the premises to be cleared of the tenant’s personal property and “deliver Premises to Landlord in the same condition as referenced in paragraph 11.”  All improvements revert to the landlord, but the landlord may also require the tenant to remove any improvements.  As with the AIR lease, the tenant may want the last sentence stricken as to removal of any improvements and or ownership of installed tenant improvements.

AIR Forms Lease: Partial Damage — Insured Loss .  Paragraph 9.2 of the AIR Forms provide that if damage occurs that is insured and the cost to repair is $10,000 or less, the landlord has the option to give the tenant the insurance proceeds and have tenant undertake the repairs.  I would strike the phrase about the lessor making the proceeds available on a “reasonable basis” to the lessor shall immediately pay those proceeds.  Additionally, this can be changed to have the landlord make the repairs even if the cost is less than $10,000.  Further, the tenant may be responsible for any gap between the insurance proceeds received by the landlord and the actual cost of the damage repair.  More importantly, the landlord may have a loophole to cancel the lease if only partial damage occurs and there is a gap in the insurance payments due to the “unique nature of the improvements”.  The tenant should modify that provision.  That portion of 9.2 where it begins “If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to modify the provision stating “… or (ii) have this Lease terminate 20 days thereafter.”

Paragraph 9.3 also provides the landlord with a way to cancel the lease if the partial damage is uninsured and caused by the tenant.

Particular attention should be given to the AIR Form at paragraphs 9.1, and 9.4.  Paragraph 9.1(b) defines total destruction as requiring repairs that cannot reasonably be repaired in 6 months or less from the date of the damage or destruction if the Lessor provides written notice of this intent within 30 days from the date of the damage or destruction as to whether or not the damage is partial or total.

The AIR Forms at paragraph 9.4 adds a line that automatically terminates the lease if there is “Total Destruction” as defined in paragraph 9.1(b).  This automatic termination should eliminated, modified or at least require notice from either the landlord or tenant required and the ability for the innocent party to seek damages.   Perhaps something along the lines of “if Total Destruction occurs, then either party may provide notice within 30 days of the destruction as to whether or not they intend to terminate this Lease.”  Commonly, the “reasonably repaired within 6 months or less” is the litigated issue.

CAR Form Lease: Damage to the Premises .  Paragraph 26 provides that if the premises cannot be repaired within 90 days, then either the landlord or tenant can terminate the lease.  Compare that to the AIR Forms, at paragraph 9.3, providing only the landlord can terminate the lease if the repairs will take at least six months!

AIR Forms Lease: Real Property Taxes .  Paragraph 10 deals with real property taxes that are passed through to the tenant as part of the common area operating expenses.  Paragraph 1.6, 4.2 and/or Paragraph 10(a) should be modified to eliminate the tenant’s responsibility to pay increased taxes due to a sale or transfer of ownership of the premises causing a real estate tax increase (re-assessment).    Related issues, or other clauses, may include a Landlord Proposition Tax 13 Tax Buyback or Proposition Tax 13 Protection clause. 

This clause may be used alleviate the potential tax burden upon the tenant:

“Notwithstanding anything to the contrary, Real Estate Taxes shall not include any increase of Real Estate Taxes and assessments due to any change in ownership including, but not limited to, the sale or any other form of full or partial transfer of title of the Building or any part thereof, or due to the transfer of title of any leases in the Building/Project, or due to any renovation or new construction in the Building or related facilities.”

AIR Forms Lease: Default –Time to Cure .  Paragraph 13 of the AIR Forms provide for most breaches to be cured counting “business days” as opposed to calendar days.  Paragraph 13.1(e) allows for more than 30 days to cure if the tenant has begun the curing process.  This is an example of a tenant friendly AIR Forms lease provision and is logical given the time required by certain commercial repairs.

AIR Forms Lease: Jury Trial Waiver .  Paragraph 48 waives rights to jury trial. Such a provision is void as against public policy and is unenforceable.  See Code of Civil Procedure § 631 and  Grafton Partners L.P vs. Superior Court (2005) 36 Cal.4th 944.  Waiver of jury requires a signed arbitration agreement.

AIR Forms Lease: Arbitration Clause .  Paragraph 49 requires the parties to check and attach a separate arbitration addendum.  The parties and brokers can also choose to all be bound to arbitration. 

AIR Forms Lease: ADA Accessibility .  AIR Forms Paragraph 50 or 51 require notification if the premises have or have not been inspected by a Certified Access Specialist (“CASp”) and states  in subsection (b) the landlord does not warranty that the premises are ADA compliant and any ADA modifications required by the tenant’s use are the sole responsibility of tenant. 

The tenant should never agree to make anything other than its own non-structural tenant improvements ADA compliant.  For those unfamiliar with basic ADA requirements check this out https://www.adachecklist.org/doc/fullchecklist/ada-checklist.pdf

CAR Form Lease: ADA Requirements .  Paragraph 19 places responsibility for any “alterations required by Law as a result of Tenant’s use shall be Tenant’s responsibility.” That is fair.  However, the landlord also has some responsibility for required government alterations.  The last line of Paragraph 19 provides that “Landlord shall be responsible for any other alterations required by law.” I believe that would include ADA improvements to the building to be the obligation of the landlord. 

The CAR Form Lease at paragraph 34 is a little sneaky.  It omits the ADA phrase which would highlight the issue, rather, it states that the property has or has not been CASp inspected with checked boxes.  However, CAR provides an optional ADA Notice form called the Commercial Lease Construction Accessibility Addendum that should be attached providing similar information as the AIR Forms paragraphs 50/51. This addendum should be used as it clearly satisfies the Lessor’s disclosure requirements.

CAR Form Lease Anti-Fraud Provision .  Paragraph 33 is unique because it provides that if the tenant lied on its application, then at any time, the landlord can “cancel this agreement”!  My feeling is a court will not permit a forfeiture or eviction based upon that type of fraud, but it provides a negotiation point.

AIR Forms exclude many matters from arbitration.   While the AIR Forms Arbitration Addendum allow the parties (and their brokers) to choose to arbitrate any disputes,  the AIR arbitration clause excludes more than it includes!  For example, it excludes torts, bad faith, punitive damage actions, unlawful detainer and small claims actions.  It even excludes disputes about “options” to extend the lease (paragraph 39 of the leases).  The AIR Forms arbitration addendum significantly differs from paragraph 22 of its AIR Forms Commercial Purchase and Sale Agreement.  I prefer the AIR Addendum and suggest adding that the arbitrator follow Code of Civil Procedure § 1280, et seq.  Take care reading the AIR Forms arbitration addendum provides as to exclusions to make sure you are comfortable with a limited arbitration clause.  E.g., a limited arbitration clause may benefit a tenant who wants to sue a landlord.

CAR Form Lease uniquely requires mandatory mediation.   CAR at Paragraph 35A requires mediation even if the arbitration clause is not signed but also has many exceptions to mediation before filing a lawsuit.  You may want to enlarge which disputes require early mediation.  The penalty for not mediating is severe, the party refusing to mediate may lose its right to recover attorney fees even if ultimately prevailing in the dispute.   

CAR Form also has many arbitration (and mediation) exceptions.  Paragraph 35. B of the CAR Form carves out exceptions to arbitration.  These include foreclosures, unlawful detainer actions, bodily injury, wrongful death and latent defect lawsuits.  However, a lis pendens or writ of attachment can also be filed as part of a Superior Court action without invoking the no mediation attorney fee penalty.

Which form should I use?

Both sets of forms work for almost every leasing situation and modified as needed.  For example, neither provide for payment of Key money to avoid the consequences of Civil Code § 1950.8(b)  The AIR and CAR forms should handle 95% of your real estate transactional needs.  Both AIR CRE and CAR offer excellent courses and guidance as to how to use their forms.

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Lease Assignment Agreement

Choose the state where the property is located.

LEASE ASSIGNMENT AGREEMENT

State of Alabama

This Lease Assignment Agreement (hereinafter "Assignment") is entered into and made effective as of ________ by and between the current lessor, hereinafter referred to "Assignor": ________ and the following new lessor, hereinafter referred to "Assignee": ________ .

Assignor and Assignee may be collectively referred to as the "Parties."

WHEREAS, Assignor is the current lessor of a residential property ("Property") located at the following address:

WHEREAS, Assignor wishes to assign and transfer to Assignee the lease agreement ("Lease") that Assignor originally signed on ________ together with the landlord ("Landlord") of the Property: ________ ;

WHEREAS, the Landlord of the Property has agreed to this Assignment;

WHEREAS, Assignee wishes to accept the assignment of the Lease.

NOW, therefore, in consideration of the obligations and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties do contract and agree as follows:

Article 1 - ASSIGNMENT:

Under the terms and conditions herein, Assignor hereby assigns and transfers to Assignee all right, title, and interest in and to the Lease and the Property.

As denoted above in this Assignment, this Assignment is to become effective on ________ and last until the end of the Lease term on ________ .

Article 2 - ASSIGNOR'S COVENANTS:

Assignor hereby warrants and covenants that Assignor may lawfully assign the Lease interest hereunder and that there are no further encumbrances on the interest. Assignor further warrants and covenants that Assignor is up-to-date with all payments, charges, fees, duties, and/or obligations under the Lease.

Article 3 - 85552855'5 828552585:

88882222 525282 525228 22 252 588 5222 525 22525 2228 552 52225 252 222282882 5522 22 2588 8888222222. 88882222 2552525 525228 22 588522 525 2252252 588 22525 552828 525/25 28882528228 58 252 82 52858525 52525 252 22582.

Article 4 - LEASE COPY & INCORPORATION:

A copy of the original Lease is attached to this Assignment. This Assignment incorporates and is subject to the original Lease. There shall not be any further assignment of the Lease without the Landlord's advance written consent.

Article 5 - BREACH:

Assignor hereby agrees that this Assignment does not discharge Assignor of any obligations under the Lease in the event of a breach by Assignee. In such circumstance, Assignor will be provided notice of the breach by Landlord and thereafter may commence any and all actions to recover possession of the Property for the duration of the Lease, as long as Assignor thereafter continues to pay rent and cure any breach by Assignee.

Article 6 - GENERAL PROVISIONS:

a) BINDING: This Assignment will inure to the benefit of and be binding upon the respective successors, assigns, heirs, executors and/or administrators of both Parties.

b) SEVERABILITY: If any part of sub-part of this Assignment is deemed invalid by court order, judgment or other operation of law, the remaining parts and sub-parts of this agreement shall remain valid and enforceable to the fullest extent.

c) GOVERNING LAW: This Lease is governed, construed, and interpreted by and through the laws of the State of Alabama .

Sign: ________________________________

Date: ________________________________

Print: ________________________________

LANDLORD CONSENT

I, ________ , the Landlord named in the above Assignment to be effective on ________ , hereby consent to that Assignment. I further agree that after ________ the Assignee in the above Assignment will be responsible for all rent and other obligations under the Lease. I hereby release the Assignor from all duties and obligations under the Lease, unless Assignee breaches, in which case Assignor must take repossession and pay all charges and accrued rent until the end of the Lease term.

I accept Assignee as Lessee in place of Assignor.

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