Commercial Lease Agreements Examined–Term Length and Stuffed Definitions

Commercial Lease Agreements Examined–Term Length and Stuffed Definitions

This is the second in an occasional series of posts relating to commercial lease agreements. This post will examine two of the most important provisions in a commercial lease: Term Length Term and Rent.  The two examined provision also allow a look into a common feature in drafting that crops up in many contracts, not just commercial leases–the stuffed definition.

Here is the Length of Term clause as it was written in a sample lease I recently reviewed for a client:

“Term” means the period of approximately sixty-two (62) full calendar months commencing on the date that the Premises are delivered to Tenant with the Improvements substantially complete (the “Commencement Date”) and expiring at 11:59 p.m. on the last day of the sixty-second (62nd) full calendar month thereafter (the “Expiration Date”), unless earlier terminated pursuant to the Lease. If Landlord does not deliver possession of the Premises by any date scheduled or targeted as the Commencement Date, Landlord shall not have any liability whatsoever to Tenant on account of such failure to deliver possession of the Premises to Tenant and this Lease shall not be rendered void or voidable as a result of such delay. However, under such circumstances, unless such delay is caused by Tenant or Tenant’s contractors, the Commencement Date shall be postponed until possession of the Premises is delivered to Tenant or the Premises are available for occupancy by Tenant.  Upon Landlord’s request, Landlord and Tenant shall execute a Declaration of Lease Commencement, substantially similar to the form attached hereto as Exhibit “C,” after the Commencement Date and Expiration Date have been ascertained.  Tenant’s failure to execute the Declaration of Lease Commencement within five (5) days of notice from Landlord shall be a material default hereunder and shall constitute Tenant’s acknowledgement of the truth of the facts contained in the Declaration of Lease Commencement delivered by Landlord to Tenant. (emphasis added)

This provision was place in the definitions section of the lease. As a general proposition, having a definitions section in any contract is a good practice if there are many defined terms that will be used throughout the contract. This particular Term Length is 62 months or essentially five years.

A nasty rumor I have heard on many, many occasions states  commercial tenants should not sign leases more than three years in length. However, that advice is too simplistic. With so many factors going into the decision to lease commercial space, having an arbitrary declaration of term length is silly. Provided all risks, benefits, and costs are weighed, when the business owners or managers are comfortable with the term length, they should accept the term and the risks associated with that decision.

The emphasized section above shows what in my opinion is the actual definition. In a properly drafted contract, the definition should end where the emphasis ends. The definition sets the start date, the end date and a very properly placed condition dealing with early termination of the lease if done pursuant to the lease terms. Nothing more need be done to define “Term.”

Yet the provision continues for another 174 words and includes a number of additional clauses; a waiver of liability for late delivery, an unnecessary clause delaying delivery until delivery is made, a demand obligation on the Tenant to sign a document, and a consequences clause describing what may happen if the Tenant fails to fulfill the demand obligation. These additional clauses have no impact on the definition of “Term” and should be placed elsewhere in the contract.

Stuffed definitions can pervade a contract if the drafter misguidedly thinks that it’s best for the operative provisions to appear simple yet be full of defined terms. The complexity is swept into definitions that are stuffed to the point of bursting. That imposed on the reader the awkward task of unpacking the complexity.

Kenneth A. Adams, A Manual of Style for Contract Drafting, 3rd. Ed., Sec. 6.37. 2013. In addition to the complexity of this particular term is that later in this lease, the term “Commencement Date” is actually referred to by another term.

Stuffed definitions create problems for the reader. When operative sections are drafted and examined later in the contract, there is a great risk for contradiction or ambiguity. For example, the above stuffed definition states if the property is not delivered on the agreed upon Commencement Date, the Commencement Date will be postponed until the property can be delivered to the Tenant. The provision also disclaims any liability if the Landlord is unable to delivery the property.

But if a savvy Tenant says that if the delivery of the property is delayed because the Landlord does not complete the necessary build-out required elsewhere in the lease, then the Landlord is liable for losses or costs incurred by the Tenant until delivery. Such a change would have to take place in two places now, the operative section of the Lease and this stuffed definition. The most common error would be the drafter would make the change in the operative section but not the stuffed definition. The result would clearly then be an ambiguity that could then result in a real dispute, which could be costly.