§ 1.05 Drafting and Analysis Basics

• Jurisdiction: United States
• Publication year: 2022

§ 1.05 Drafting and Analysis Basics

The complexity of the modern commercial lease mandates diligent review of even the most basic clauses. This section introduces the reader to some techniques employed in drafting basic commercial lease clauses, as well as to the thought process involved in determining exactly what these clauses say and do.¹ The examples provided in this section illustrate: (1) the drafting technique referred to as "pyramiding" definitions, together with the approach needed to analyze such definitions; (2) the analysis of the flow of dates and time lines; and (3) precision drafting of specific definitions within the lease document.²

[1]—Interpreting Definition Pyramids

Drafters of complex commercial leases often employ the technique of building one definition upon another definition. This style of drafting is referred to as "pyramiding," "layering" or "compounding." While it is an effective style of drafting, it can be difficult, if not dangerous, to follow the language, interpret the layers of definitions and understand their interaction within the overall text. An error in either drafting or analysis can be significant when definitions are pyramided and compartmentalized. Such errors have the potential to multiply the costs commensurate with the square footage area of the premises affected.

A great deal can be hidden or excluded within the definitions, making it very problematical for a reader to anticipate and deal with what is not said. In certain jurisdictions, this is made even more difficult if definitions are referred to or labeled in such a way as to lead the reader to believe a right is being conferred when, in fact, rights are being limited.

Pyramiding of definitions may occur across many different articles in the lease, adding to the complexity of the analysis. It is a challenge for the reader to keep focused on the pyramided definitions as they stretch across a wide spectrum of the document's provisions—from the demising section, through the condition of delivery of premises,³ to the impact on the work letter, for instance. Ideally, however, once the pyramiding of definitions and their interaction within the document has been deciphered, each party's responsibilities for doing work and the timing of the commencement of obligations should be clear.

There are several ways to read a complex commercial lease document. Many practitioners read a lease from front to back. However, if the practitioner is going to read the lease only once, this may be a mistake. It is important to read the lease by jumping from provision to provision, following the interaction of the pyramided defined terms on all the applicable sections in the lease. Relevant concepts should be tracked through the provisions dealing with those concepts first; the reader can then go back and read the balance of the lease for the other independent, noninterrelating or interacting provisions. Some definitions can only be properly dissected by reading the pyramided definition from back to front through the building blocks of its elements. This is generally true with escalations.

The following drafting example subdivides and unbundles definitions to illustrate how this drafting technique can be utilized to set out the allocation of certain time periods for construction between the landlord and the tenant. Note the different time lines for different components of rent, additional rents and other charges, thus creating independent commencement and running dates for measurement, and payment. The example also deals with resulting delays in the performance of either party and the impact on all of the defined measurement periods of any delays. Without reference to other facts and documents, the reader will see the benefit of precise complex definitions and also the danger that can result from the casual review of a document that employs the pyramiding of one definition upon another.

Example 3

Section 1.0 Definitions.

"Commencement Date" shall mean the later of (a) April 1, 2013 and (b) one hundred twenty (120) days after the Plan Date. After the Commencement Date, Landlord and Tenant shall enter into a letter agreement confirming the Commencement Date, provided, however, that any failure by Tenant to execute such letter agreement shall not affect the occurrence of the Commencement Date.

"Plan Date" shall mean the later of (a) December 1, 2012 and (b) the date Tenant delivers to Landlord the items required to be delivered to Landlord as set forth on Exhibit "C" attached hereto and made a part hereof with respect to Tenant's Initial Alterations, which items are subsequently approved by Landlord in accordance with Article 3 hereof.

"Rent Commencement Date" shall mean, subject to the provisions of Section 31.3 hereof, the date which is the later of (a) sixteen (16) months after the Term Commencement Date and (b) January 1, 2015.

"Term" shall mean a term which shall commence on the Commencement Date and shall expire on the Expiration Date.

"Term Commencement Date" shall mean, subject to the provisions of Section 31.3 hereof, the later of (a) September 1, 2013 and (b) five months after the Commencement Date.

Section 1.1. Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the Premises for the Term to commence on the Commencement Date and to end on the Fixed Expiration Date at the annual rental rate of One Million Dollars ($1,000,000).

Section 1.2. Commencing on the Term Commencement Date and ending on the Expiration Date, Tenant shall pay to Landlord an amount equal to the SiteWide Common Area Expenses.

Section 1.3. If the Rent Commencement Date shall occur on a date other than the first (1st) day of any calendar month, then on the Rent Commencement Date Tenant shall pay to Landlord an amount equal to the product of (a) the Fixed Rent then payable, divided by Three Hundred Sixty-Five (365) and (b) the number of calendar days in the period from the Rent Commencement Date to the last day of the month in which the Rent Commencement Date shall occur, both dates inclusive.

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Section 2.1. (a) Landlord, at its expense, shall cause the work listed in Exhibit "D" attached hereto and made a part hereof ("Landlord's Work") to be substantially completed in a good and worker-like manner by the dates shown in Exhibit "D" attached hereto and made a part hereof. Landlord shall deliver possession of the Premises to Tenant on the Commencement Date, with that portion of Landlord's Work indicated in Exhibit "D" which is required to have been completed by April 1, 2013, having been substantially completed and the Premises shall be capable of receiving and otherwise ready for Tenant to commence the Initial Alterations, free of any noncompliance with any Requirements or any violations thereof or other conditions with respect thereto which would prevent or delay the filing of plans and specifications or the filing for and obtaining permits (building and otherwise), certificates or other filings with or from any Government Authority by Tenant in connection with the Initial Alterations. Notwithstanding the foregoing, Landlord shall grant Tenant access to the premises as of the Access Date upon all of the terms and conditions of this Lease, other than the payment of any item of Rental, to permit the commencement of the Initial Alterations, provided that from the Access Date until the Commencement Date such access shall be granted at Landlord's sole discretion, to the extent that such access will not interfere with or delay the performance of the portion of Landlord's Work remaining to be performed. Within five (5) days after Substantial Completion of Landlord's Work, Tenant shall inspect such Work and shall deliver to Landlord a notice (the "Punchlist Notice") setting forth the Punchlist Items which are not completed. Subject to the provisions of subparagraph (b) of this Section 2.1, Landlord shall promptly commence and diligently prosecute to completion the performance of the Punchlist Items.

This drafter clearly subscribes to the theory that when you pyramid definitions, the words do not necessarily have to describe what they mean! Remember when interpreting language of this sort, do not let the mind and logic take over completely. The perception is likely to be quite different from the reality of the definition.

A slow and careful walk through Example 3 provides the reader with a keen understanding and appreciation that the drafter fully understands all of the concepts of measurement and all of the different leasing benchmarks, such as commencement, contract, possession, occupancy, term, demising and rentals. The drafter also provides for an erosion of any rental abatement and adjusts all of the terms based on subsequent performance under the lease, e.g., completion of Landlord's and Tenant's Work or any subsequent delays.

The drafter begins the definition section with "Commencement Date." Absent any other terms, the reader might believe this refers to the commencement date of the obligations under the lease. In this instance, however, the lease was dated as of an earlier date.⁴ It was the original intention of the parties that the landlord would construct a major improvement pursuant to detailed specifications provided by the tenant and would complete the landlord's portion of the installation by a date certain, reflected here as April 1, 2013. However, as the negotiations evolved, it became clear that the landlord would not know what to construct until the tenant was able to complete its plans. The tenant, however, could not complete its plans until data could be obtained from the landlord about the building's basic core and shell space. Additionally, a considerable amount of the Landlord's Work depended upon the prior completion of certain Tenant's Work. Therefore, although the expectation under the deal was that Landlord's Work would be concluded and presented on April 1, the definitions reveal an acceptance of the...