Final Assessment: As-Is Condition, Fire and Casualty, and Signage and Scaffolding

In most instances, a fire and casualty clause creates significant exposure to a landlord due to the lack of protective language for the landlord.

A landlord is usually allotted a significant amount of time to inform the tenant of whether or not they will rebuild after a fire or casualty.

Tenant advocates should include an option for tenant to cancel its lease if (a) the casualty occurs during the last two years of the lease term, or (b) the casualty occurs at any time, and the restoration will take between 90-180 days from the fire or casualty, depending on the type of tenancy.

Whether due to it being required by the landlord, inadequate abatement of rent language contained in the lease and/or because you need temporary space, tenants should maintain insurance against loss of rent or rental value due to a fire or casualty in an amount equal to the annual rental for the demised premises.

In the event of a fire or casualty, generally, a landlord will provide a tenant with a rent abatement, regardless of fault.

Many landlords will include in the initial draft of the lease that if a fire or casualty is caused by tenant’s negligence, not only will tenant not receive a rent abatement from the date of casualty through the date of restoration, but tenant will also be liable for restoration costs.

Most fire and casualty clauses effectively allow a landlord to take advantage of a casualty that occurs by being able to cancel a tenant’s below market lease in a market that has risen significantly since lease execution.

Tenant advocates should attempt to delete language in the lease that makes tenant liable for restoration costs in the event of a casualty caused by tenant’s negligence.

To protect against a landlord being able to take advantage of a casualty that occurs by canceling a tenant’s below market lease, tenant advocates should include language in its lease that provides that in order for the landlord to cancel the lease, they must concurrently terminate leases affecting at least 35%-50% of the rentable area of the space leased to tenants in the building exclusive of any rentable area leased by landlord.

Generally, tenants are afforded a full rent abatement following a casualty or fire, regardless of the amount of damage caused.

If the lease states that tenant shall be entitled to a full rent abatement only in the case of a substantial casualty, tenant advocates should try and insert language that provides that the premises shall be deemed substantially damaged if more than 20% of the premises are damaged, if the premises are not accessible, or, if in tenant’s reasonable judgment, the premises is not usable for the proper conduct of tenant’s business operations.

Generally, in a fire and casualty clause, a landlord’s restoration obligation extends to delivering the premises back to tenant with the improvements made by tenant prior to its occupancy.

Generally speaking, a landlord’s restoration obligation after a fire or casualty includes delivering the premises back to tenant as a vanilla box, without the improvements made by tenant prior to its occupancy.

In order to give tenant time to perform its work, tenant advocates should attempt to negotiate language in its fire and casualty clause which states that tenant’s liability for rent shall resume 30 days after landlord has performed its work and delivered the premises to tenant.

Most leases allow a landlord a maximum of 150 days after a casualty to inform tenant whether landlord will demolish, rebuild or terminate the lease.

Tenant advocates should include language in the lease that requires landlord to inform tenant of its decision to demolish, rebuild or terminate the lease within the earlier of (i) 90-120 days of the casualty date, or (ii) when landlord is notified of how much insurance money it will be receiving.

Most leases provide for a rent abatement between the casualty date and the landlord work substantial completion date, regardless of whether tenant is then in default of its lease.

Tenant advocates should at a minimum, insert language into its fire and casualty clause stating that as long as tenant shall not be in monetary or material nonmonetary default under the lease after the expiration of any applicable cure period, then tenant will receive a rent abatement between the casualty date and landlord’s substantial completion of the restoration work.

Generally, a landlord is liable to a tenant for any loss or damage resulting from any other tenant occupying the space adjacent to or adjoining the demised premises.

A tenant advocate should make sure that the lease requires the landlord to maintain insurance on the building for no less than 95% of its replacement value against loss or damage due to fire and other casualties.

An “as-is” condition provision does not relieve the landlord of any liability as to the condition of the premises at lease commencement.

Except if provided for otherwise in a lease, a commercial tenant will have no recourse against an unsatisfactory condition of the premises, if it has agreed to accept the premises “as-is.”

In a letter of intent and lease, a landlord advocate prefers to include language that states, “Tenant acknowledges that tenant’s taking of possession of the premises shall be conclusive evidence that the premises were in good and satisfactory condition at the time such possession was so taken.”

It is in a landlord’s best interest to include language in a LOI and lease stating, “Landlord shall be responsible for making any improvements or alterations therein or for spending any money to prepare the premises for tenant’s occupancy.”

A tenant advocate prefers to include language in a LOI and lease stating, “Landlord shall not be responsible for making any improvements or alterations therein or for spending any money to prepare the premises for tenant’s occupancy.”

A tenant should attempt to negotiate for language that the landlord represents that on the lease commencement date, landlord shall have substantially completed all of the work landlord is required to complete as described in the lease.

Landlords and their representatives should advocate for language along the lines of, “Landlord represents that landlord’s work will be free of defects for a period of one (1) year after the lease commencement date.”

Landlords and their representatives should advocate for language along the lines of, “Tenant represents that the premises and all electrical, heating, ventilating, air conditioning (if any), plumbing and other systems affecting the same have been inspected by tenant and by tenant’s engineers (or that tenant has waived such inspection or will conduct said inspections by the lease commencement date).”

An “as-is” condition provision effectively allows a landlord to make no representations or warranties of any kind or nature as to the fixtures, equipment and systems serving the premises.

For a tenant in a more suburban setting, having prominent monument and/or building signage is a must (assuming tenant has the requisite negotiating power to request same).

For tenants in urban settings or multi-floored suburban buildings which periodically require scaffolding, tenants should negotiate that (i) the scaffolding must double-height; (ii) the landlord should produce and hang the signage for the tenant at its sole cost and expense; and (iii) if the tenant is near a street corner, replacement signage will not only be hung over the store, but on the scaffolding of the cross street to that of the tenant as well.

Tenants in urban settings or multi-floored suburban buildings should not worry about negotiating any rights with regards to the landlord putting up scaffolding at its building.

Where zoning permits signage on a building’s roofs or sides, it is in the landlord’s best interest to not readily give away the space to tenants. A building’s roof and sides can become profit centers for a landlord in the way of signage placement for those wishing to advertise.

When making a decision as to what signage will be allowed on its building, landlords don’t need to consider the fabric, culture, demographics, ethnicity and/or politics of the community before allowing a particular sign to be hung by its tenants.

Listings on the first floor lobby directory are generally limited to the tenant’s proportionate share of the building based on the square footage of its space.

Tenants should consider requesting the right to lobby signage during the negotiation of the letter of intent.

Landlords should include language in the lease stating that tenants may install any sign at the premises at tenant’s sole option.

Landlord’s consent to a tenant’s proposed signage should be subject to and conditioned upon compliance with all applicable codes, laws and regulations of any governmental or quasi-governmental entity.

Tenants should consider having a schematic or picture of its proposed signage pre-approved by its landlord and annexed to its lease.

Signage includes any words and/or designs on windows, doors, canopies, awnings, billboards and other areas outside of the premises.

Landlord advocates should negotiate that the landlord, and not the tenant, is responsible for obtaining any necessary licenses and permits for any of tenant’s signage.

Where appropriate, landlords should consider the insertion of language in its lease requiring tenant to hire landlord’s competitively priced building signage company.

Landlords should make sure they have the option, upon prior notice, to compel tenant to remove any sign in the event such sign, in landlord’s sole but reasonable discretion, interferes or conflicts with landlord’s overall scheme of decoration or décor of the building.

Tenant’s should attempt to delete any right that landlord has to remove signage that landlord deems interferes or conflicts with landlord’s overall scheme of decoration or décor of the building, or at the very least, make sure any such removals, signage redesign and hanging is at landlord’s expense.

Landlords should negotiate the right, at any time, to remove any sign or other attachments to the premises, including canopies or awnings, at such times as it may be necessary or desirable to make repairs to the structure of which the premises forms a part, provided landlord will replace same at landlord’s own cost and expense.

Landlords only need to worry about tenant’s initial signage installation and not about tenant placing any further signage at the premises.