CHAPTER 13 - § 13.2 • DRAFTING LEASES

• Jurisdiction: Colorado

§ 13.2 • DRAFTING LEASES

For lease drafting generally, along with sample forms, see James G. Benjamin, Colorado Real Estate Forms Deskbook, Ch. 5, "Leases," 2nd Ed. (CLE in Colo., Inc. Supp. 2020); and Beat U. Steiner, Evan L. Randall & Jordan J. Bunch, Commercial Leasing in Colorado: A Practical Guide, 2nd Ed. (CLE in Colo., Inc. 2019).

NOTE: The Colorado Real Estate Commission has adopted listing forms for use by brokers representing prospective landlords or tenants. See www.colorado.gov/pacific/dora/node/95951.

At a minimum, a lease requires a description of the property leased, the identity of both landlord and tenant, a grant of possession, a term of possession, and a stipulated rental payment (or other consideration) along with the time and manner of payment. In practice, leases have evolved to address numerous related issues around the idea of tenancy, and so may range from a single-sentence agreement to a sophisticated contract encompassing 50 to 100 pages or more. The following matters are not intended to be exhaustive, but should be considered when drafting leases.

§ 13.2.1—Names of Tenant and Landlord

The full names of all the parties to the lease should be obtained and inserted in the lease document. It is preferable to refer to the parties as landlord and tenant rather than lessor and lessee simply because of the possibility of typographical errors in setting forth the respective obligations of the parties. The landlord must hold sufficient title or authority to grant possession.

§ 13.2.2—Description of Premises and Grant of Possession

The lease must adequately describe the subject property or premises by reference to the legal description, street address, suite number, or other sufficiently identifying information. Property in which ancillary rights are granted, such as parking, storage, or common areas, should also be identified. A depiction of the property or premises is recommended in addition to the grammatical description.

The landlord should expressly grant possession of the premises to the tenant. For the duration of the lease, the tenant is entitled to possession of the premises to the exclusion of the landlord.

§ 13.2.3—Commencement Date and Length of Term

The term of the lease is the period of time from the commencement date to the expiration of the tenant's right of possession. If a definitive term is not stated, a periodic tenancy is presumed equivalent to the period for which rent is paid. First Interstate Bank v. Tanktech, Inc., 864 P.2d 116 (Colo. 1993).

In a residential situation, the commencement date is often not complicated. However, care should be taken to protect the landlord and notify the tenant that, in the event the unit is not available for occupancy on the commencement date, other arrangements must be made for the possession of the premises. For instance, the parties may agree to substitute another unit, the tenant may be permitted to cancel the lease, or the landlord may have the ability to continue the commencement date until such time as that particular unit is available. In any event, an outside date should be set for the date of commencement in order to protect all the parties. In the commercial setting, the commencement date may be tied to completion of tenant improvements by the landlord or other contingencies. Therefore, it may be necessary to include an anticipated commencement date and then a procedure for changing that date if the conditions precedent have not been completed by the anticipated commencement date.

§ 13.2.4—Rent

The lease must include not only the amount of rent to be paid, but also the time and manner of payment. Rent may be expressed as a total sum for the entire term, payable in installments, or simply as the periodic payments. The term "rent" should include not only the base periodic payment, but all other charges and payments due under the lease, sometimes referred to as "additional rent." In a residential lease, additional rent might include utility charges or condominium maintenance fees. In a commercial lease, the additional rent is often described as "triple net": the tenant's share of taxes, insurance, and operating expenses for the property in which the leased premises are located. A commercial lease in which the triple net costs are included in the base rent as opposed to separately charged is a "gross lease." Commercial retail leases often include percentage rent on top of base rent, which is a percentage of the tenant's sales from the premises.

§ 13.2.5—Tenant's Intended Use of the Premises

Absent any express prohibitions in the lease, the tenant may use the premises for any lawful purpose. In the residential situation, the tenant should be prohibited from conducting a business at the premises. In addition, the landlord should establish the number of residents who will be occupying the premises and whether pets will be permitted, and, if so, what kind of animals will be allowed. In the commercial situation, the landlord will want the type of business to be conducted and all ancillary activities to be described as specifically as possible, whereas the tenant may want to use as broad a description as possible.

The Americans with Disabilities Act of 1990 (ADA), 42 U.S.C. §§ 12101, et seq., contains sweeping provisions to protect individuals with physical and mental disabilities. Title III specifically addresses the design and construction of places of public accommodation, requiring them to be readily accessible and usable by persons with disabilities. Both the landlord and the tenant of a place of public accommodation may bear responsibility for compliance with the ADA. When drafting a lease, the landlord should consider the proposed use by the tenant and whether that use will cause the premises to be considered a place of public accommodation, or whether proposed alterations to the premises will change the areas of public use, for example, and necessitate additional changes in design.

§ 13.2.6—Repairs

Along with exclusive possession of the leased premises, a tenant under the common law practice of leasing assumed the obligation to perform all necessary repairs during the term of the lease. Relatedly, this rule generally meant that, except any express warranties from the landlord, the tenant was presumed to take the premises "as is" with all existing defects.

The rule of caveat emptor still generally applies in Colorado to commercial leases. However, repair obligations are now drafted in commercial leases with an eye to the proper allocation of duties between landlord and tenant in recognition of their respective abilities, positions, and long-term interests. For example, an office tenant may bear the responsibility to undertake ordinary repairs within the tenant's suite, but the landlord will covenant to maintain the office building generally, including all building systems that support the office suite and common areas through which the tenant traverses to reach the premises. A tenant under a long-term single occupancy lease of a standalone building may take on a higher burden to repair the entire building, parking lot, and property, but the landlord and tenant will still need to address repairs, like a roof replacement, that will outlive the lease. In all instances, the question of who performs the repairs will likely be separated from the question of who pays for the repairs, with landlord typically passing through the cost of landlord-controlled repairs to the tenant in the form of additional rent. Note that repairs or...