{"id":1004710302,"date":"2024-04-15T09:42:36","date_gmt":"2024-04-15T17:42:36","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004710302"},"modified":"2024-04-16T05:22:00","modified_gmt":"2024-04-16T13:22:00","slug":"beware-the-rules-and-regulations","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/beware-the-rules-and-regulations\/","title":{"rendered":"Beware the Rules and Regulations"},"content":{"rendered":"
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Stefanie R. Chamberlain, Kean W. Devine and Tommy Gossett.<\/figcaption><\/figure><\/div>\n\n\n

Attention spans are finite, especially when confronted with an exhaustively detailed commercial lease. While it may be tempting for brokers and advisors of prospective tenants to focus solely on the \u201cbig ticket items\u201d of a lease, it is always important, and sometimes critical, to thoughtfully consider how each covenant will impact the tenant\u2019s use of the space. This includes those found beyond the signature pages and into the exhibits. <\/p>\n\n\n\n

A prime example of a frequently under-emphasized category of covenants is the landlord\u2019s rules and regulations.\u00a0Traditionally, landlord\u2019s rules and regulations are incorporated into the lease through an exhibit attached to the end of the lease often by means of a simple covenant requiring tenant\u2019s compliance with landlord\u2019s rules and regulations (e.g. \u201cTenant shall faithfully observe and comply with all rules and regulations set forth on Exhibit \u2018X\u2019 attached hereto.\u201d). Because of their less-than-prominent location, tenants and their advisors may be tempted to gloss over or ignore the rules and regulations in a lease negotiation.\u00a0<\/p>\n\n\n\n

Brokers should be aware that the rules and regulations carry serious implications for their clients, including the potential to trigger a default under the lease\u2014just like the conditions receiving top billing in the body of the lease. Brokers should therefore ensure that tenants and their advisors spend the same negotiation effort on the restrictions on a tenant\u2019s operations found in the rules and regulations as the same restrictions found in the body of a lease.<\/p>\n\n\n\n

The potential impacts of rules and regulations<\/h2>\n\n\n\n

Most brokers are familiar with covenants addressing a lease\u2019s typical \u201cbig ticket items,\u201d in large part because of the emphasis such items receive in negotiating a letter of intent and the lease itself. These often include the rent, term, permitted use, maintenance and repair obligations, tenant improvement and signage provisions. While these covenants constrain a tenant\u2019s behavior, the rules and regulations of a landlord for the property can often implicate a tenant\u2019s day-to-day operations with a heavier and much more invasive hand, lending a troubling amount of subjectivity to a landlord\u2019s enforcement decisions.\u00a0<\/p>\n\n\n\n

For instance, common topics addressed in the rules and regulations include: hours of operation; \u201cgreening\u201d measures (e.g. requiring efficient light fixtures, environmentally friendly cleaning products or low VOC paints); how late after closing the lights must remain on in a space; conducting tenant\u2019s business \u201cin a manner consistent with a first-rate building\u201d; parking conditions\u2014just to scratch the surface.<\/p>\n\n\n\n

With that in mind, consider the plight of a tenant who wishes to operate a machine shop but signed a lease under which the rules and regulations include a generic prohibition on \u201cannoying\u201d sounds and vibrations.\u00a0Or the predicament of a last mile fulfillment center operator whose lease includes rules and regulations restricting the times and locations permitted for loading and unloading trucks.\u00a0Even innocuous restrictions on \u201cnoxious\u201d odors and open flames could create problems for a wood-fired restaurant operating in the ground floor of an office building.<\/p>\n\n\n\n

Virtually any commercial tenant can find itself in a position where its normal operations could violate standard, and often untailored, rules and regulations. We therefore encourage brokers to push their clients to think critically as negotiations begin about whether the client\u2019s intended operations are compatible with the restrictions or requirements found in the rules and regulations. If the gulf between the client\u2019s intended operations and those restrictions cannot be bridged, a tenant may consider seeking a more suitable space.<\/p>\n\n\n\n

Protecting tenant interests<\/h2>\n\n\n\n

Rules and regulations can be fair and necessary for the smooth operation of a development, especially one with multiple tenants. If possible, brokers should push to implement the suggestions below during the negotiation of an LOI to avoid conflicts:<\/p>\n\n\n\n

Insist upon express, attached rules and regulations<\/strong>: The landlord\u2019s preferred lease form may require compliance with \u201call rules and regulations promulgated by landlord from time to time\u201d without further detail. To avoid this becoming an issue later in negotiations or later during the lease term, brokers should insist upon receiving an express list of landlord\u2019s rules and regulations while negotiating the LOI and ultimately have it incorporated into the lease. The list should minimize subjectivity and landlord\u2019s discretion. Otherwise, a tenant may find itself subject to landlord\u2019s enforcement whims.<\/p>\n\n\n\n

Curb landlord\u2019s modifications<\/strong>: Commercial leases often allow landlords to freely modify the rules and regulations. If possible, brokers should push for the inclusion of provisions requiring tenant\u2019s consent where such modification would cause an adverse change in or unreasonably interfere with tenant\u2019s business operations. As a compromise position, a broker might push for provisions whereby landlord must provide written notice to tenant of any modifications, which would give rise to tenant\u2019s right to dispute the modification as not reasonably relating to certain factors (e.g. good order, security, efficient management, safety, cleanliness).<\/p>\n\n\n\n

Add protective provisions to the lease<\/strong>: <\/strong>Brokers with awareness of the tenant-favorable concepts below, which sometimes can be hard won, can facilitate positive outcomes for their clients:<\/p>\n\n\n\n