As an attorney and a real estate broker, I understand the need for attorney review of some (not all) real estate transactions to protect the interests of the tenant or purchaser. The first four installments of the "How the Attorney Killed my Real Estate Deal" series discussed how and why a relatively simple lease transaction wasn't consumnated. In this and the next three installments, I will discuss how to review a residential lease to avoid becoming a case study in the "How the Attorney Killed my Real Estate Deal" series.
A. Nature of Attorney Review of Residential Leases.
1. Consider Relative Negotiation Strength and Bargaining Position of the Parties. Before reviewing a residential lease, it is important to carefully consider and weigh the strength of the party's respective bargaining positions. Factors such as market conditions, vacancy rates, rental rates, demand for the property, etc. may have an impact on the willingness of the landlord to make changes to the leases. When there are high vacancy rates, landlords generally (but not always) are more amenable to revisions. However, notwithstanding vacancy rates, some landlords will simply demand that the lease as drafted by the landlord be executed. Before you waste any time or effort in drafting revisions to a lease, I would first pick up the telephone and contact the landlord, leasing agent or landlord's attorney to discuss the proposed changes.
2. Understand the Circumstances of the Tenant. In addition, it is important to also understand the nature of the transaction and the concerns of the tenant. For example, a tenant with unstable employment may desire to include a provision allowing for lease termination prior to the expiration of the lease term. Similarly, a tenant who may be operating a business from the apartment certainly will desire the inclusion of terms different than the average residential lease. The nature of the proposed revisions should have a reasonable relation to the legitimate concerns of the tenant and should factor in the likelihood that the scenario will occur as well as the nature of the risk or possible monetary damage. Too often, attorneys will take a shotgun approach to drafting when a scapel is more effective. In the end, you are more likely to win concessions if you pick your battles instead of simply rewriting the lease in its entirety.
3. Focus on Lease Review and Informed Decision Making - Not Rewriting Entire Lease. In any event, before drafting a new lease, it is important to understand that lease review should start with identifying potential issues and assessing the likelihood of occurrence and risk associated with the issue. After identifying the issues and explaining the risk, the attorney should clearly communicate the risks to the tenant. The tenant should make an informed decision and should provide clear direction regarding what items or risks should or should not be addressed.
B. Issues Common to Lease Review.
1. Types of Common Issues: With respect to a residential lease, there are common reoccuring concerns. Often, these concerns fall into three categories:
Lease terms that vary from the promised or advertised lease terms - such as additional fees, lack of parking designation, etc.
Lease terms that are onerous, are burdensome or are the result of unequal bargaining power - such as re-entry provisions, right to show, limitation of damages, disclaimer of warranties, etc.
Lease terms that are illegal or unenforceable - such as self-help remedies, confession of judgment, etc.
Lease terms that are boilerplate and don't fit the transaction or property - such as form leases not tailored to a specific property.
Lease terms necessary due to specific tenant concerns or the property such as pets, right to use as home office, ADA related improvements, etc
2. Abbreviated List of Issues to Review with Tenant: Although this isn't a comprehensive checklist list, here is a list of common, reoccurring concerns that should be reviewed with the tenant:
- Lease Term: How long does the lease run? Does the lease automatically renew?
- Rent: Is the monthly rent stated in lease as advertised? Are there any additional fees for parking, storage, condominium fees, amenity fees (e.g pool or fitness center), etc.? Is there a grace period? Is interest or late fees charged on late rental payments?
- Security Money: How much is the security deposit? Is there a post move-out inspection? For deductions from the security deposit, is there a requirement that an itemized list of deduction be provided?
- Utilities: What utilities are included in the monthly rental rate? What utilities are provided by the landlord?
- Pet: Are pets permitted? If so, is there a pet fee or other requirement?
- Restrictions on Use: What are the restrictions on the use of the leased premises? Does the tenant intend to operate a home business?
- Restrictions on Occupancy: Does the lease restrict the number of occupants? Do you have to disclose the name of the occupants?
- Termination: Can the lease be terminated by the landlord or tenant before the expiration of the lease? What are the grounds for termination? What are the penalties for termination? What notice is required for termination of the lease? Is there a cure period?
- Repairs/Maintenance: Who is responsible for repairs? Who is responsible for maintenance? Who is responsible for for items like lawn mowing or snow removal?
- Self-Help: Does the lease grant the landlord any right to reenter the property? Does the lease address abandonment? Does the lease purport to grant a lien against the tenant's personal property?
- Verbal Promises: Are verbal promises such as repairs, painting, etc. reduced to writing?
- Legal Compliance: Do the provisions of the lease comply with federal, state and local laws and regulations?
- Execution: Is the lease property executed? Did the tenant receive a copy of the signed lease?
This outline is a basic roadmap of common issues to be discussed and reviewed in a residential lease. In a future post, I will provide a more detailed checklist for the review of leases as well as a library of common lease provisions.
Looking for experienced buyer or tenant representation? Contact Ryan Shaughnessy at PREA Signature Realty at 314-971-4381.
Attorney Review Series
- Attorney Transaction Killers Series - Rule #1 for Attorney Review of Real Estate Transactions - Don't Change the Agreed Terms of the Transaction by Substituting Your Judgment for Your Customer's Judgment
- Attorney Transaction Killers Series - Rule #2 for Attorney Review of Real Estate Transactions - Understand the Impact of Drafting Delays - Time is Really of the Essence
- Attorney Transaction Killers Series - Rule #3 for Attorney Review of Real Estate Transactions - Pick Your Battles Carefully - There is No Such Thing as a Risk Free Transaction
- Attorney Transaction Killers Series - Rule #4 for Attorney Review of Real Estate Transactions - Stay within your Field of Expertise
- Attorney Transaction Killers Series - Drafting an Attorney Review Provision
Attorney Review Series - Residential Leases
- Attorney Transaction Killers Series - A Better Approach to Attorney Review of Real Estate Transactions - Residential Leasing
- Attorney Transaction Killers Series - Standard Lease Terms - Commons Issues for Attorney Review