By Liad Hadar – Director
This article first appeared in Asset Magazine’s August 2022 edition

Through years of experience in drafting lease agreements on behalf of both landlords and tenants, and negotiating to seal the deal, I’ve observed a number of recurring themes.

Seemingly trivial clauses are often debated ad nauseum, leading to the breakdown in negotiations and the collapse of good deals. As someone who is passionate about
facilitating deals, knowing that a good deal was wasted on any insignificant point/s is agonising.

The aim of this article is to narrow the focus of debates and negotiations to the key components necessary for a fair lease agreement. I hope to assist landlords in concluding good deals, with good tenants, and avoiding lost deals.

Simplicity Trumps Complexity

Albert Einstein was credited with the quote: “The definition of genius is taking the complex and making it simple.”

From my experience as both a property law litigator and commercial draftsman, the best lease agreements are simple and easy to understand. The aim is to be succinct and practical.

My personal preference is to keep clauses simple on the test that whoever reads them, layman or lawyer, easily understands their purpose and why they were included.

A complex and wordy 85-page lease agreement does not place the landlord in any better position than a simpler 20-page version. In fact, the former often convolutes the position, creates unnecessary anxiety for a tenant and leads to issues further down the line.

From both practical and litigation points of view, interpretational disputes between the parties often arise from longwinded and overly technical clauses.

Keeping clauses simple and practical also helps define expectations of both parties at the outset. This often also assists landlords to avoid technical and costly litigation.

If you’ve read any clause twice or more and remain unsure about its meaning, I believe that this is a good indication that such clause should be simplified. Further, as a landlord with knowledge about what is generally relevant for your purposes, if you’re second-guessing the purpose of any clause, it may be a good indication that the clause is irrelevant to your operations and can be removed in its entirety.

One-Sidedness

Traditionally, lease agreements drafted by landlord’s representatives included needlessly aggressive and one-sided clauses. Similarly, lease agreements drafted by representatives of national tenants followed the same theme.

Although it was considered the norm at the time and lease agreements were still regularly concluded, there was an ominous undercurrent of resentment by the party subject to such one-sided clauses. They considered the position as a necessary evil of concluding a lease agreement.

This also led to ill-feelings of distrust and unfairness. From a tenant’s point of view, the result was that the tenant would find any reason to assert their position with any maintenance or other rather trivial issue that they could identify (read: actively seek and find!).

Alternatively, if any tenant felt that they held some power and pushed back on certain terms, it often led to a breakdown in negotiations and a lost opportunity.

As the landlord-tenant relationship has evolved and continues to do so at a drastic pace, with the balance of power constantly shifting toward a more centred position, the best
agreements include fair and reasonable clauses for both sides.

This leads to a feeling of partnership between the parties, especially from the tenant, resulting in a much-improved working relationship.

By way of an example, I have found it immeasurably useful to simply rely on the word “reasonable” throughout my preferred lease agreements as it sets the tone for a good
relationship between the parties. If a tenant must obtain the landlord’s permission for X purposes, I include the wording that such permission cannot be “unreasonably withheld”.

This reads much better and certainly not one-sided compared to “The tenant cannot” do X or Y.

In Conclusion

The landlord-tenant relationship continues to change and improve.

Being receptive to using simpler and more practical lease agreements, negotiating on certain terms and removing unnecessary clauses is not a consequence of desperation by the landlord. It should rather be viewed as a sign of foresight for more deals and a good working relationship with tenants.

A landlord that understands the tenant’s psyche regarding lease agreements will be a winning landlord.

This does not mean that any of the landlord’s crucial rights need to be compromised. They can, and will, remain protected – but narrowed down to what is, and what is not, important in the long run.

Tenants: in entering into a lease, seek a landlord who offers a lease that is simple, balanced and a deal worth partnering.

Landlords: as industry professionals, read the current draft of the lease agreements that you use and apply the principles set out above. Consider whether they are overly complex, technical and one-sided. If so, it’s high time for you to engage on updating your lease agreements to benefit from significantly reduced (if any at all) friction when negotiating new deals with potential tenants.