La La Land…no, no, La La Premises

February 2017

Over the next several months, we will analyze various provisions that come up in a lease. One of the first subjects covered in any lease is the Premises. This provision is pretty straightforward — what space is being leased by the tenant and where is it located? How big is it? What condition is it in and who is responsible for preparing it for the tenant’s use?

The Premises
A lease should describe the Premises being leased to the tenant from the landlord. This description is usually in the form of an address (plus a specific space number if the Premises is part of a larger shopping center or an office building) and is often supplemented with an exhibit showing a plan or a legal description of the space.

Size of the Premises
Most (but not all) leases will state the size of the Premises, and some leases will give the tenant (and sometimes the landlord) the right to measure the space after it has been delivered to the tenant. Depending on the type of space being leased, if there is a remeasurement right, the lease will usually call out the measurement standard to be used. Office leases typically use the Building Owners and Managers Association (BOMA) standards; in retail leases you are more likely to see a description of how the space will be measured (e.g., from the exterior faces of exterior walls and the center line of demising walls, with no deductions for interior partitions, columns, or stairs). A remeasurement right can be particularly important when the rent is based on the size of the space (as it often is) and the Premises is not capable of being measured by the tenant prior to lease execution, whether because of an existing tenant in the space or because the Premises is new construction or for some other reason. In this situation, the parties need to decide what happens if the space ends up being a different size than what was contemplated in the lease. For example, the rent could be adjusted no matter what size the space ends up being, even if the space is larger or smaller than the size bargained for by the parties. Alternatively, the parties might agree to put a cap on the change (e.g., the size of the space in the lease will be adjusted based on the actual size, but not by more than 5% in either direction of the area stated in the lease), which limits the risk that the rent will change drastically from the amounts in the lease. Or the parties might agree that the size will decrease if the space is smaller than the size listed in the lease but will not increase if the space is larger. Another less common variation on this addresses what happens if the space is significantly different than the agreed-upon size. For example, if the tenant needs a certain minimum amount of space in order to operate, what happens if the Premises doesn’t meet that threshold? Should the tenant have the right to terminate? Force the landlord to modify the Premises so that it meets that minimum size? These are all considerations that the parties need to take into account when drafting the lease.

Condition of the Premises
Another aspect of describing the Premises is what condition will it be in when delivered to the tenant. Is it as-is, with the tenant taking responsibility for making whatever changes it needs to be able to operate? Or will the landlord be doing work in the Premises to put it in a certain condition? This can vary from lease to lease, ranging from the landlord disclaiming all responsibility for the condition of the Premises to the landlord being responsible for the tenant’s entire buildout. The landlord’s responsibilities (if any) are often specifically laid out in a work letter exhibit that lists each item of work the landlord is responsible for completing. The tenant’s work is usually not as specifically defined in the lease and will instead be shown on the plans prepared by the tenant and approved by the landlord.