Chapter 1 - § 1.1 • PURPOSE AND USE OF THIS BOOK

• Jurisdiction: Colorado

§ 1.1 • PURPOSE AND USE OF THIS BOOK

This book is designed for attorneys, brokers, and other real estate professionals who engage in commercial leasing in Colorado. It is intended to provide readers with a practical approach to representing both landlords and tenants in commercial leasing transactions, and it identifies the interests of landlords and tenants with respect to certain types of leases and specific lease clauses. In the book, we explain the significance of the different provisions in a typical commercial lease and offer tips for drafting and negotiating commercial leases. The book serves a basic text to teach beginners "Commercial Leasing 101," as no one should attempt to negotiate a lease without a basic understanding of the structure of a lease and its terms. It is also intended to be a reference guide for those more experienced in commercial real estate who are looking for a quick answer to commercial leasing questions or to brush up on their leasing skills. We hope the checklists at the end of each chapter will serve as a useful tool for all.

This book discusses three major categories of commercial leases: ground leases, building leases, and space leases. While the book primarily focuses on space leases (such as office, retail, and industrial leases), it also devotes attention to the unique aspects of building leases and ground leases.

Each chapter of this book discusses a specific category of lease clauses, explaining their significance and providing practitioners with tips on drafting and negotiation. It follows the order in which these lease clauses often appear in a lease. The book is intended to provide a comprehensive look at all the clauses one commonly encounters when reviewing a commercial lease, from key to terms like "rent" and "term" to those clauses commonly thought of as "boilerplate." It identifies common pitfalls and offers both the landlord's and the tenant's perspective with respect to different lease clauses.

In writing this book, it is assumed that — as is usually the case — the base lease form comes from the landlord and favors the landlord and its interests. In such cases, the tenant is limited to reviewing the landlord's lease, and its review and negotiation are limited by the landlord's forms. While tenants usually can negotiate certain changes, tenants do not typically have the power to rewrite a lease or to convince a landlord to discard its lease form or its standard lease clauses. Sometimes, of course, the tenant has the upper hand, and this book identifies not only the positions of the typical tenant, but also the usual requests or requirements of the "strong tenant" (i.e., a national or major credit tenant or a tenant that otherwise has significant bargaining power in the lease negotiation).¹

§ 1.1.1—The Lawyer's Role

The attorney for either the landlord or the tenant in a lease transaction must play multiple roles, including educator, advisor, analyst, negotiator, and drafter.

Perhaps the least obvious role for a lawyer is that of educator. A lawyer must be able to educate his or her client regarding the significance of various lease provisions and offer explanations for any questions the client may have with respect to the lease. Much of what is and is not stated in a lease is beyond the experience of most clients. Thus, a lawyer is particularly helpful to a client as educator when he or she can describe in practical terms what is at stake when the wording of a particular lease clause is being negotiated. Being a good storyteller is helpful.

The leasing lawyer also needs to be a good advisor. Often a landlord or tenant will ask, "Should I accept this change (in language)?" A fundamental difference between a lawyer and a business person is that the lawyer merely describes the risks, while the business person takes them. A good leasing lawyer will be able to advise the client fully as to the risks involved. A very good leasing lawyer will go one step further and help the landlord or tenant evaluate the risk and wisely advise whether the risk is worth taking in the present leasing circumstances. Being able to give that advice takes some basic business sense, as well as years of observation and experience. Advising a client also requires a keen sense of the risk profile of the person being advised, as well as that of the ultimate client organization, be it landlord or tenant. Some clients want everything in their favor they can get; for other clients, it is more important to close the deal quickly, and they are willing to compromise on minor (and sometimes more major) points to get that tohappen.

A good leasing lawyer will be a good analyst. Certain lease clauses are inherently difficult to understand. A good analyst will understand what each lease clause really says. Some lease clauses are difficult to understand because they are poorly drafted. A good analyst will be able to detect a poorly drafted clause, determine its meaning, and, if the language is ambiguous but cannot be changed for whatever reason, describe the possible interpretations to the client and evaluate the risks of living with the uncertainty in meaning. Good analytical skills are most important in seeing how various lease clauses fit together and what the legal effect will be of disparate clauses when they are read together. For example, it takes considerable analysis to see how the operating expenses, maintenance, repair, damage and destruction, insurance, and surrender clauses work together if a casualty loss occurs. The same is true for the exculpation, indemnification, and insurance clauses of the lease. A precursor to any effective lease negotiation is a clear understanding of how the lease works; that takes a lot of analysis.

A lawyer representing either a landlord or a tenant must negotiate with the lawyer for the other party to create a lease agreement that protects his or her client's interests. To do this effectively, a lawyer must understand what his or her client is hoping to achieve economically and for its business, as well as the level of risk and responsibility the tenant is willing to assume.

The lawyer, as negotiator must be able to assess, both at the outset and as the negotiation unfolds, what his or her client's bargaining position is. The size of the premises, the state of the market, the creditworthiness of...