It has been said so often it is trite but nonetheless true: An oral contract isn’t worth the paper it’s written on. Also true but not said nearly often enough: A written lease isn’t worth much either if it doesn’t contain the language needed to protect the landlord.

In our last newsletter, we recently discussed a lease provision that residential landlords should not include in their leases. See Article: Landlords Can’t Require Apartment Tenants to Pay the Broker’s Fee. We are mentioning it here because brokerage fee provisions have been standard for a long time and it is important for landlords to remove them and/eliminate the practice entirely.

Focusing on clauses that leases should include, one stands out because it is so often overlooked by condominium owners who rent their units. These leases should specify that the tenant is required to comply with condo association governing documents. Failure to include this language can create problems for both the condo association and the unit owner.

A common example: A tenant who has a dog moves into a community that prohibits them. If it was the owner who had the dog, the board could simply order him or her to remove the pet and impose fines for every day the owner fails to comply.

But the association has no relationship with tenants and little authority to enforce association rules against them. The board can tell the owner to require the tenant to remove the dog, fine the owner if the tenant doesn’t comply, and seek a court order, if necessary, directing the landlord to evict the tenant if the owner doesn’t take corrective action on his own. Here’s where the lease the owner has, or should have, with the tenant comes into play.

If the lease contains language requiring the tenant to comply with association rules and the tenant insists on keeping the dog, the landlord will have a solid legal argument for removal and/or possible eviction. If the lease doesn’t contain this language, however, the tenant can argue reasonably that he was unaware of the no-pet rule. As a practical matter, many tenants will argue ignorance of the rule even if they were aware of it. But a ‘compliance with association rules’ clause will strengthen the owner’s position even in the housing courts, where judges tend to favor tenants. Likewise, demand letters from the association’s counsel seeking enforcement of the condominium’s pet restriction can also strengthen the owner’s case.

To protect the association, boards should require owners who rent their units to:

Have written leases with tenants for a term of at least a year;
Attach a copy of the association’s governing documents to the lease; and
Require tenants to sign a statement acknowledging that they have both received and read the governing documents.

With or without a lease, the eviction process is going to be lengthy and (for the owner) expensive. But a well-drafted lease with the appropriate language will increase the owner’s prospects of winning an eviction and winning it more quickly, benefiting both the owner and the association.

**Commercial Leases**

Many clauses in commercial leases are essential for landlords but in an uncertain economic climate, a few stand out.

Early Termination

The lease should specify the damages tenants will incur if they break the lease for any reason before the end of the term. A standard clause makes the tenant responsible for the rent and all other costs for the duration of the lease term. The landlord is typically required to mitigate these damages by making reasonable efforts to find another tenant, but this provision doesn’t require landlords to accept any tenant who applies. A good lease would also hold the current tenant responsible for all costs incurred by the landlord to re-rent the space (i.e. broker’s commission, legal fees, cleaning, repairs, etc.). The language should also specify that if the new rent is lower, the tenant is required to pay the difference. Instead of making the tenant’s potential liability open-ended, some landlords specify a flat fee for breaking the lease (known as a “liquidated damages” clause or “lease break fee”), requiring, for example, six months of rent at the highest possible rate. Whatever the language, the goal is to ensure that the landlord will not suffer financially if the lease is terminated early.

Reimbursement of Legal Fees

Under standard contract law, plaintiffs are entitled to recover legal fees only if the contract or an applicable statute allows them. The Massachusetts condominium statute specifies that associations are entitled to legal fees related to their collection of common area fees, but no comparable statute applies to lease enforcement actions in either the residential or commercial rental arena. If the lease doesn’t allow the recovery of legal fees, landlords will have great difficulty demanding them. This is an issue primarily for commercial leases; the chances that a housing court judge will order an evicted tenant to pay the landlord’s legal fees are roughly slim to less than none.

Rent Escalation Clauses

Landlords don’t need a crystal ball to predict that their operating costs, insurance, taxes and other expenses will increase over time, and they want their rental income to keep up. In Massachusetts, landlords can’t impose a rent increase unless tenants accept it. This isn’t a significant issue for residential leases, which typically have one-year terms. Tenants who don’t want to accept the increase must move.

But commercial leases are written for much longer terms – 10 years is standard. Predicting how much costs will increase that far out is challenging, to say the least. One option is to specify that the rent will increase by a specified amount every year during the lease term. Alternatively, landlords can write the lease initially for five years with an option for the tenant to renew for another five years at a rate to be specified at that time. This approach reduces the time a landlord might be locked into a rent that doesn’t cover rising costs.

Personal Guarantee

Residential and commercial landlords vet prospective tenants carefully to ensure their ability to pay the rent. Residential landlords look primarily at income, credit reports, employment and rental history. There are no guarantees, of course. Tenants can lose their jobs or encounter medical or other financial challenges no one can predict. But if things go south over the course of a one-year lease, it’s not the end of the world – at least, not for the landlord who should usually be able to re-rent the apartment quickly. . For commercial landlords dealing with 10-year leases, the calculations are more complicated.

Landlords can verify that a company is highly successful at the beginning of a lease, but they can’t predict whether the company will still be successful – or even still be in business -- after five years or even after a year, for that matter. Conditions can change quickly.

That is why commercial leases should require a “personal guarantee” making someone responsible for covering the lease payments if the company does not. On a long-term, “triple net” lease (including rent, insurance and taxes), absent an enforceable guarantee, landlords could find themselves out hundreds of thousands of dollars with little prospect of recovering much, if any, of that loss.

For more information regarding landlord tenant matters please contact Dillon Brown directly.

WHAT LEASES SAY IS IMPORTANT - WHAT THEY DON’T SAY CAN BE PROBLEMATIC

REASONABLE ACCOMMODATIONS

LANDLORDS CAN’T REQUIRE APARTMENTTENANTS TO PAY THE BROKER’S FEE