Welcome to the third and final installment of Medical Business Basics: Commercial Leases 3.  Part 3 will be (a little) shorter than the first two but still contains some vital information you need to understand before you sign a commercial lease for your business.  

As before, the original lease is in blue, while my notes are in black.  Remember that I’m not a lawyer or a commercial real estate professional.  While I have experience as both a landlord and a tenant, my comments are from the perspective of a medical professional becoming a tenant of a commercial building.    

27. HOLDING OVER 

(a) Tenant will, at the termination of this Lease by lapse of time or otherwise, surrender immediate possession to Landlord.  If Landlord agrees in writing that Tenant may hold over after the expiration or termination of this Lease and if the parties do not otherwise agree, the hold over tenancy shall be subject to termination by Landlord at any time upon not less than one (1) day advance written notice, or by Tenant at any time upon not less than thirty (30) days advance written notice.  Further, all of the terms and provisions of this Lease shall be applicable during the hold over period, except that Tenant shall pay Landlord, as Base Rent for the period of any hold over, an amount equal to 125% of  Base Rent in effect on the date of termination, computed on a daily basis for each day of the hold over period, plus all Additional Rent and other sums due hereunder.  If Tenant shall fail immediately to surrender possession of the Leased Premises to Landlord upon termination of this Lease, by lapse of time or otherwise, and Landlord has not agreed to such continued possession, as above provided, then, until Landlord can dispossess Tenant under the terms hereof or otherwise, Tenant shall pay Landlord from time to time upon demand, as Base Rent for the period of any such hold over, an amount equal to 125% of the Base Rent in effect on the date of termination, computed on a daily basis for each day of the hold over period, plus all Additional Rent and other sums due hereunder.  No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly agreed by the parties.  The preceding provisions of this section shall not be construed as Landlord’s consent for Tenant to hold over.  

When the lease ends, you must leave the leased space immediately unless you come to an agreement with the landlord.  If you do not have a written agreement on the length of the holdover period, the landlord can make you move with one day’s notice, or you can decide to leave with 30 days’ notice.  

During this holdover period, you are still bound by all lease terms, except you must pay 125% of the base rent price, which is computed daily, and all additional rent assessed. 

These conditions still apply if you hold over without the landlord’s consent.  Holding over does not constitute an extension of the lease.  

(b) Notwithstanding any provision to the contrary herein, in the event that Tenant fails to deliver to Landlord (and surrender possession of) all of the Leased Premises upon the expiration or earlier termination of this Lease on the date of expiration or earlier termination, then Landlord may, without judicial process and without notice of any kind, immediately enter upon and take absolute possession of the Leased Premises or applicable portion thereof, expel or remove Tenant and any other person or entity who may be occupying the Leased Premises or applicable portion thereof, change the locks on the Leased Premises or an applicable portion thereof (in which event, Tenant shall have no right to any key for the new locks), and take any other actions as are necessary for Landlord to take absolute possession of the Leased Premises or applicable portion thereof, including removing Tenant’s property, subject to Section 21 hereof.  

If you don’t leave the space at the end of your lease, the landlord has the right to take possession of the space.  The landlord may expel the tenant or any other occupant and change the locks.  The tenant has no right to the new keys.  The landlord may also remove the tenant’s possessions.  This can be done without the involvement of the legal system.  

28. RIGHTS OF LENDER 

Tenant accepts this Lease subject and subordinate to any recorded mortgage presently existing or hereafter to exist with respect to the Leased Premises.  Landlord shall use its commercially reasonable efforts to obtain a Subordination, Non-Disturbance and Attornment Agreement from its current and any subsequent lender in form reasonably acceptable to Tenant (the “SNDA“), which provides that if no Event of Default has occurred and is continuing, such holder will not disturb Tenant’s right of occupancy of the Leased Premises in accordance with the terms and provisions of this Lease in the event of a foreclosure or deed in lieu of foreclosure, as applicable, of any such mortgage and will contain such other provisions as the applicable holder shall require in connection therewith.  Landlord’s failure to obtain the SNDA shall not constitute a condition to Tenant’s obligations under this Lease.  Further, but without limiting the preceding sentence, Landlord is hereby irrevocably vested with full power and authority to subordinate and/or to evidence such subordination of Tenant’s interest under this Lease to any mortgage hereafter placed on the Leased Premises, and Tenant agrees upon demand to execute such additional instruments subordinating this Lease, and further defining the terms of such subordination, as well as the attornment discussed below, as Landlord or the holder of any such mortgage, may require.  

This section discusses what happens to the tenant in case of a foreclosure of the building.  You (the tenant) accept that your lease is subordinate (legally less important) to the mortgage holder (usually a bank).  The landlord must attempt to obtain an SNDA (Subordination, Non-Disturbance, and Attornment) Agreement from the lender, which states that if the tenant is not in default of the lease, the tenant won’t be disturbed if the landlord forecloses and the lender takes the building.  

Tenant agrees to provide to the holder of any such mortgage, whose name and address have been provided to Tenant (a lender), a copy of each notice to Landlord which alleges any act, omission, or condition that might constitute a default by Landlord hereunder and mortgagee, in its sole discretion, shall have all rights of Landlord hereunder to cure any such default.  If the interests of Landlord under this Lease shall be transferred to any Purchaser by reason of foreclosure or other proceedings for enforcement of any mortgage on the Leased Premises, at the election of the Purchaser Tenant shall be bound to the Purchaser under the terms and conditions of this Lease for the balance of the remaining Lease Term, including any extensions or renewals, with the same force and effect as if the Purchaser were Landlord under this Lease; provided, however, that such Purchaser shall not be liable or bound to Tenant (i) for any act or omission of any prior landlord, (ii) for any offsets or defenses that Tenant might have against any prior landlord, (iii) for or by any Rent that Tenant might have paid for more than the current month, (iv) by any amendment or modification of, or consensual termination agreement with respect to, the Lease made without the mortgagee’s consent, (v) for any Security Deposit given by Tenant to a prior landlord unless such deposit is actually received by such Purchaser, (vi) for any repairs or replacements required by this Lease arising prior to the date Purchaser takes possession of the Leased Premises, or (vii) for any moving, relocation or refurbishment allowance or any construction of or payment or allowance for tenant improvements to the Leased Premises or any part thereof for the benefit of Tenant except as set forth in this Lease. 

If the landlord defaults on the mortgage, the mortgage holder shall inherit the landlord’s rights regarding the tenant under this lease.  Basically, the lender (bank) becomes the new landlord, and you, as the tenant, remain responsible for all conditions of the lease.  The lender (new landlord) must also abide by the lease, except for the exceptions outlined in this section.  

Tenant further agrees at the election of the Purchaser to attorn to the Purchaser, including the mortgagee if it be the Purchaser, as its Landlord.  Such attornment shall be effective without the execution of any further instruments upon the Purchaser’s succeeding to the interest of Landlord under this Lease.  The respective rights and obligations of Tenant and the Purchaser upon the attornment, to the extent of the then remaining balance of the Term of this Lease and any extensions and renewals, shall be and are the same as those set forth in this Lease, but Tenant agrees upon demand to execute such additional instruments defining the terms of such attornment as Landlord or the Purchaser may require.  Each such mortgagee and each such Purchaser shall be a third-party beneficiary of the provisions of this Section.

The attornment clause here obligates the tenant to recognize the property’s new owner as its landlord regardless of whether the new owner acquired the property through a regular sale or a foreclosure.

29. ESTOPPEL CERTIFICATES  

(a) Tenant agrees to furnish from time to time within ten (10) days of request by Landlord or its lender a statement certifying that Tenant is in possession of the Leased Premises; the Leased Premises are acceptable; this Lease is in full force and effect; this Lease is unmodified, or, if modified, referencing all modifications; Tenant claims no present charge, lien, or claim of offset against Rent, or, if Tenant does have such claim, the details of such claim; the Rent is paid for the current month but is not paid and will not be paid for more than one month in advance (except estimated Additional Rent under Section 5); there is no existing default under this Lease, or, if there is an Event of Default, the details of such default; and such other matters as may be reasonably required by Landlord or Landlord’s lender.

An estoppel certificate is a document signed by the tenant that provides an update on the current status of their lease.  The landlord can request that you fill out an estoppel certificate, and you must comply within 10 days.  This usually occurs when the landlord tries to sell or refinance the property, and the buyer (or bank) wants an affirmation that the tenant is following the lease’s details.  The tenant will confirm specific details of the lease, such as the amount of their rent payment and security deposit, a pledge that they are not in default, and other information outlined above.  

(b) If Tenant fails to provide such certificate within ten (10) days after a request by Landlord, Tenant shall be deemed to have approved the contents of any such certificate submitted to Tenant by Landlord and Landlord is hereby authorized to so certify.

If you don’t fill out and return an estoppel certificate within 10 days of the request, the landlord will fill it out for you, and you are pledging that what they fill out is correct.  

30. SUCCESSORS  

This Lease shall be binding upon and inure to the benefit of Landlord and Tenant and their respective heirs, personal representatives, successors and assigns.  

The lease shall be passed to your heirs or representatives if you die. 

31. REAL ESTATE COMMISSION 

Tenant and Landlord represent and warrant to the other that it has not dealt with any broker, agent, or other person in connection with this transaction, and that no broker, agent, or other person brought about this transaction, other than the Brokers.  If any broker or other intermediary, other than the Brokers, claims to have dealt with either party in connection with this Lease or to have been the inducing cause of this transaction, the party under whom such broker or intermediary is claiming shall indemnify, defend, and save the other party harmless of and from any claim for commission or compensation by such broker or intermediary.

In this section, you pledge that you have not dealt with any real estate broker, agent, or another professional that has a claim to profit from this transaction.  If you used a real estate professional, you alone are responsible for their claims, and the other person in the transaction is held harmless (the landlord).  

32. DEFAULT BY LANDLORD  

Landlord shall be in default of this Lease if it fails to perform any provision of this Lease that it is obligated to perform, and if the failure to perform is not cured within fifteen (15) days after written notice of the default has been given to Landlord by Tenant.  If the default cannot reasonably be cured within fifteen (15) days, Landlord shall not be in default of this Lease if Landlord commences to cure the default within such fifteen-day period and diligently and in good faith continues to cure the default until completion, provided the same is capable of being cured by Landlord.  If Landlord shall have failed to cure a default under this Section 32 after expiration of the applicable time for cure of a particular default, Tenant, at its election, but without obligation therefor may as its sole and exclusive remedy seek specific performance of any obligation of Landlord.

The landlord defaults on the lease if it doesn’t perform any provision that it is obligated to perform and does not cure this issue within 15 days of written notice from the tenant.  If the landlord tries to fix the problem within 15 days and it takes longer, the landlord is not in default.  If the landlord defaults, the tenant may seek specific performance (sue the landlord to perform), but this is the only remedy.  

33. TENANT’S LIENS  

Tenant shall have no authority, express or implied, to create or place or allow to be imposed any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord in the Leased Premises or the Shopping Center or to charge the Rent payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs.  Each such claim shall affect, and each such lien shall attach to, if at all, only the leasehold interest granted to Tenant by this Lease.  Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Leased Premises on which any mechanic’s or other lien is or can be validly and legally asserted against its leasehold interest in the Leased Premises or the improvements thereon.  Tenant further agrees to save and hold Landlord harmless from any and all loss, cost, or expense based on or arising out of claims or liens asserted by parties by virtue of their dealings with Tenant and encumbering the leasehold estate or the right, title and interest of the Landlord in the Leased Premises or the Shopping Center.  Under no circumstances shall Tenant be or hold itself out to be the agent or representative of Landlord with respect to any Alterations of the Leased Premises whether or not consented to or approved by Landlord hereunder.  Tenant waives any right to claim any nature of lien or to withhold, abate or deduct from or offset against Rent under Texas Property Code § 91.004 (b) or otherwise.

The landlord does not want any liens or encumbrances against the building, so they can sell or refinance it as they see fit.  In this section, the tenant attests that you have no authority to create or place a lien against the building or allow someone else to place one.  You agree to pay all your contractors and workers so they don’t attempt to place a lien, and you attest that you alone, at your own expense, will legally resolve any liens placed upon the building.  

34. ENTRY BY LANDLORD 

Landlord reserves and shall at any and all reasonable times with advance notice to Tenant, so long as it does not interfere with Tenant’s ability to see patients and is otherwise in compliance with all requirements of Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and after notice to Tenant, have the right to enter the Leased Premises to inspect the same, to submit said Leased Premises to prospective purchasers or tenants, to post notices of non-responsibility, to repair the Leased Premises and any portion of the Building of which the Leased Premises are a part that Landlord may deem necessary or desirable, without abatement of Rent, and may for that purpose erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, always providing that the entrance to the Leased Premises shall not be unreasonably blocked thereby, and further providing that the business of Tenant shall not be interfered with unreasonably (provided that prospective tenants may only enter the Leased Premises during the last one hundred eighty (180) days of the Term or if Tenant is in Default hereunder).  Landlord shall refrain from entering into any rooms where patients are currently undergoing examinations or treatments.  

The landlord may enter the leased premises anytime they want, for any reason they want, as long as they give advance notice to the tenant.  However, because you are running a medical practice, the landlord must abide by HIPAA and cannot interfere with your ability to see patients.  The landlord can build scaffolding or other structures needed for repairs without compensating the tenant, but they can’t unreasonably block the entrance.  During the last 180 days of the lease or any time the tenant is in default, the landlord may bring prospective tenants into the leased space during business hours if they do not go into patient rooms that are being actively used.  

Furthermore, Landlord will use commercially reasonable efforts to not interrupt Tenant’s business practice during such entry.  Except in the event of a default by Landlord of its HIPAA restrictions in this Section 34, Tenant hereby waives any claim for damages or for any injury or inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Leased Premises, and any other loss occasioned thereby.  For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Leased Premises, excluding Tenant’s vaults, safes, cabinets, pharmaceutical closets and files, and Landlord shall have the right to use any and all means that Landlord may deem proper to open said doors in an emergency, in order to obtain entry to the Leased Premises without liability to Tenant except for any failure to exercise due care for Tenant’s property and any entry to the Leased Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstance by construed or deemed to be forcible or unlawful entry into, or a detainer of, the Leased Premises, or an eviction of Tenant from the Leased Premises or any portion thereof.  Notwithstanding any default by Tenant or exercise by Landlord of any right of entry into the Leased Premises or of any lien rights, Landlord covenants and agrees to (a) comply with all HIPAA requirements and not access patient files, and use all reasonable precautions to ensure that no employee, agent, or contractor or Landlord will access such files, and (b) provide Tenant access to Tenant’s patient files at all times.

When they enter your building, the landlord will try not to interrupt your medical practice.  Unless they violate HIPAA laws, you cannot sue the landlord for any damages arising from the entry.  The landlord should retain a key that opens all locks, but they may forcefully enter the space in an emergency and not be held liable for damage.  

35. ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES  

It is expressly agreed by Tenant, as a material consideration for the execution of this Lease, that this Lease is the entire agreement of the parties and that there are and were no verbal representations, warranties, understandings, stipulations, agreements, or promises pertaining to this Lease not incorporated in this Lease.  It is likewise agreed that this Lease may not be altered, waived, amended, or extended except by an instrument in writing signed by both Landlord and Tenant.  Not in limitation upon the foregoing, Landlord agrees that to the extent assignable, all warranties, if any shall exist, from contractors or suppliers with respect to the improvements to the Leased Premises hereunder are hereby partially assigned to Tenant to the extent necessary to avail Tenant of the benefits thereof with respect to its leasehold estate and property located at the Leased Premises. 

The lease contains everything important in your agreement with the landlord.  There are no verbal promises regarding the leased space.  You may not alter the lease in any way unless agreed upon in writing by both parties.  You, the tenant, are responsible for any contractors or workers you bring into the building to improve it.  

36. FORCE MAJEURE

A force majeure clause allows the landlord to non-perform if they cannot fulfill their obligation due to an extraordinary event or circumstance beyond their control, such as a war, strike, riot, crime, epidemic, or sudden change in the law.   Some people call this an “Act of God” clause, but this is only one of the reasons that Force Majeure can be claimed.  

(a) Landlord shall not be required to perform any covenant or obligation of this Lease or be liable in damages to Tenant for that period during which the performance or non-performance of the covenant or obligation is delayed, caused by, or prevented by Tenant or Tenant’s Representatives or by an act of God or Force Majeure.  

The landlord is not forced to perform any items under this lease in the event of force majeure.  For example, if the plumber’s union goes on strike, the landlord can’t reasonably be expected to fix an external plumbing issue within 15 days.  

(b) Except with respect to the payment of Rent or any other sum due hereunder, Tenant shall not be required to perform any covenant or obligation of this Lease or be liable in damages to Landlord for that time period during which the performance or non-performance of the covenant or obligation is delayed, caused by, or prevented by Landlord or Landlord’s Representatives or by an act of God or Force Majeure.  

Force majeure gained attention during the 2020 COVID-19 pandemic when many businesses were forced to close.   Since force majeure applied, tenants were not expected to follow the lease (see Section 44) when it came to remaining open.   However, while some landlords chose to work out payment plans with their tenants, the tenants were legally obligated to continue to pay their rent and additional rent under this section of the lease.      

(c) The term “Force Majeure” is defined for purposes of this Lease as strikes, lockouts, sit-downs, material or labor restrictions by any governmental authority, riots, floods, washouts, explosions, earthquakes, fire, storms, acts of God, acts of the public enemy, wars, insurrections, terrorism and any other similar cause not reasonably within the control of either party and which by the exercise of due diligence Landlord is unable, wholly or in part, to prevent or overcome.

Before 2020, most leases didn’t specifically list pandemics in the force majeure section.  However, it still applied due to the broad language used (that’s the point of all this legal jargon).  New leases now specifically list pandemics in the force majeure section.  This example lease was from before the pandemic.

37. MISCELLANEOUS

This section covers a lot of miscellaneous statements that further protect the landlord.  These are all for legal purposes and don’t matter much to the tenant.  Most of them are self-explanatory, but I’ll interject where I think it’s necessary.

(a) Words of any gender used in this Lease shall be held and construed to include any other gender; and words in the singular number shall be held to include the plural, unless the context otherwise requires.

(b) The captions inserted in this Lease are for convenience only and in no way define, limit, or otherwise describe the scope or intent of this Lease or any provision hereof, or in any way affect the interpretation of this Lease.

(c) If any clause or provision of this Lease is illegal, invalid, or unenforceable under present or future laws effective during the Term of this Lease, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby; and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid, or unenforceable there be added as a part of this Lease a clause as similar in terms to such illegal, invalid, or unenforceable clause or provision as may be possible and be legal, valid, and enforceable.

If any part of the lease is illegal, invalid, or unenforceable now or in the future, this does not negate the rest.   The intention of the illegal section will be discerned, and a legal clause similar to the original will be inserted.  

(d) Landlord does not in any way or for any purpose become a partner with Tenant in the conduct of its business or otherwise, nor a member of a joint venture with Tenant.

(e) Tenant shall not record this Lease without the prior written consent of Landlord.  However, upon the request of Landlord, Tenant shall join in the execution of a memorandum or so-called “short form” of this Lease for the purposes of recordation.

(f) Time is of the essence in the performance of all the covenants, conditions, and agreements contained in this Lease.

Time is of the essence, which means that if the terms of a contract are not met by a specific deadline, one or more parties could be negatively impacted. 

(g) Any duty, obligation, or debt and any right or remedy arising hereunder and not otherwise consummated and/or extinguished by the express terms hereof at or as of the time of termination of this Lease, whether at the end of the Term hereof or otherwise, shall survive such termination as continuing duties, obligations, and debts of the obligated party to the other or continuing rights and remedies of the benefited party against the other.

The conditions of the lease survive its termination.  If you owe the landlord money at the end of the lease, you are still responsible for paying it, and vice versa.  

(h) This Lease may be executed in one or more counterparts, each of which counterpart shall for all purposes be deemed to be an original; but all such counterparts together shall constitute but one instrument.

A copy of this lease is as valid as the original.  

(i) All Exhibits, Addenda and Schedules, if any, attached hereto, are hereby incorporated in this Lease by reference.

(j) Landlord and Tenant hereby each acknowledge and agree that they are knowledgeable and experienced in commercial transactions and further hereby acknowledge and agree that the provisions of this Lease for determining Operating Expenses, charges, amounts and Additional Rent payable by Tenant are commercially reasonable and valid even though such methods may not state precise mathematical formulae for determining such charges.  ACCORDINGLY, TENANT HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ALL RIGHTS AND BENEFITS TO WHICH TENANT MAY BE ENTITLED UNDER SECTION 93.012 OF THE TEXAS PROPERTY CODE, AS SUCH SECTION NOW EXISTS OR AS SAME MAY BE HEREAFTER AMENDED OR SUCCEEDED. 

You, the tenant, acknowledge that you understand this commercial lease and will be bound by it.  Specifically, you acknowledge that you understand and agree to the calculation of the operating expenses.  Remember to pay attention to the sections with all caps!

(k) Tenant agrees that it will not protest or appeal any appraisal or re-appraisal of the Leased Premises or all or any portion of the Shopping Center before any governmental authority and Tenant hereby waives any right to receive notices of re-appraisal, which waiver includes, without limitation, any rights which may otherwise exist under Sections 41.413 and 42.015 of the Texas Tax Code as the same may be modified or amended from time to time. 

38. NOTICE 

(a) All Rent and other payments required to be made by Tenant to Landlord shall be payable to Landlord at the address of Landlord set forth in Section 1 above or such other address that Landlord may specify from time to time by written notice delivered to Tenant.

You must send your rent and additional rent payments to the address the landlord specifies, which the landlord may change by written notice.  

(b) All payments, if any, required to be made by Landlord to Tenant shall be payable to Tenant at the address set forth in Section 1, above or at any other address that Tenant may specify from time to time by written notice delivered to Landlord.

If the landlord must pay money back to the tenant, such as an overcharge of the estimated CAM payments, it will be sent to the address listed in section 1, unless the tenant notifies the landlord in writing of a change of address. 

(c)  Any notice or document required or permitted to be delivered by this Lease shall be deemed to be delivered (whether or not actually received) if addressed to the parties at the respective addresses set forth in Section 1 and when (i) deposited in the United States Mail, postage prepaid, certified mail return receipt requested, (ii) deposited with any nationally known overnight express carrier or (iii) received at the specified facsimile receiving station of either party provided such facsimile delivery is subsequently also made by one of the methods described in subsections 38(c)(i) or (ii).

Anything mailed by the tenant or the landlord to the address provided, using certified US mail, UPS/Fed Ex, or fax (if fax # provided) will be considered delivered.  This is true regardless of whether the recipient received and read the document.  This clause exists so that you can’t ignore a notice from the other party.  

39. LIMITATION ON DAMAGES  

Tenant agrees that any liability of Landlord under this Lease shall be limited solely to Landlord’s interest in the Shopping Center, and no other assets of Landlord shall be subject to levy or execution.

This section protects the landlord’s other assets.  If the tenant successfully sues the landlord for any reason, the landlord’s liability is limited to the building/shopping center.  You agree that you won’t/can’t go after the landlord’s other assets.  

40. RELOCATION RIGHT  

Intentionally omitted.

While this section has been omitted in this lease, it can be an important clause.  A relocation right allows the landlord, at their sole discretion, to move the tenant to another physical location within the shopping center.  The landlord may have several reasons for wanting to do this, but this is almost universally bad for the tenant. 

If you run a small retail shop with only a few shelves that can easily be moved, perhaps this clause is not a big deal.  For a medical business, especially if you must spend money and time to build out the leased space, this should be a non-starter for you as the tenant.  You should never sign a lease that gives the landlord a blanket relocation right.  This is the reason it was omitted from this lease.  

Sometimes, this section will permit the landlord to move the tenant only when certain conditions have been met, for example, if the original leased space has been damaged or rendered uninhabitable through no fault of the tenant (perhaps there was a fire or flood in an adjacent business).  In this case, ensure that the cost of moving and preparing the new space falls entirely on the landlord and that you have a right to refuse the new space. 

 

41. DISPLAYS  

Tenant may not display or sell merchandise or allow grocery carts or other similar devises within the control of Tenant to be stored or to remain outside the defined exterior walls or permanent doorways of the Leased Premises.  Tenant further agrees not to install any exterior lighting, amplifiers or similar devices or use in or about the Leased Premises any advertising medium which may be heard to seen outside the Leased Premises, such as flashing lights, searchlights, loudspeakers, phonographs or radio broadcasts.

This section defines things you can and can’t do with displays outside your leased space. 

The landlord doesn’t want any tacky or cheap-looking advertising displays or anything that creates noise that may disturb other tenants. 

42. AUCTIONS  

Tenant shall not conduct or permit to be conducted any sale by auction in, upon or from the Leased Premises whether said auction be voluntary, involuntary, pursuant to any assignment for the payment of creditors or pursuant to any bankruptcy or other insolvency proceeding.

You can’t conduct an auction at the leased space or permit one to be conducted for any reason.  

43. FINANCIAL STATEMENTS

Tenant hereby agrees to provide to Landlord financial statements certified by Tenant as true and correct when requested, which will include the current financial status and the most recent year-end financial status of Tenant’s operations, and financial statements certified by Guarantor(s) as true and correct when requested, which will include the current financial status and the most recent year-end financial status of Guarantor(s).

If requested, the tenant must provide the landlord with up-to-date financial statements for the business and any Guarantor.   The landlord wants to know that the business is financially sound enough that you will continue paying your rent.  

44. HOURS OF BUSINESS  

Subject to the terms of this Lease, Tenant shall continuously, during the entire term hereof, conduct and carry on Tenant’s business in the Leased Premises and shall keep the Leased Premises open for business and cause Tenant’s business to be conducted therein during the usual business hours of each and every business day as is customary for business of like character in the city in which the Leased Premises are located to be open for business; provided, however, that this provision shall not apply if the Leased Premises should be closed and the business of Tenant temporarily discontinued therein on account of strikes, lockouts or similar causes beyond the reasonable control of Tenant.  Tenant shall keep the Leased Premises adequately stocked with merchandise, and with sufficient sales personnel to care for the patronage, and to conduct said business in accordance with sound business practice.

The landlord wants every space in the building to be filled with an open business that benefits all the tenants (and thus the landlord).  A full building with a good mix of desirable tenants makes it more valuable.

In this section, you attest that you will always keep your business open during normal business hours.  The exception is if there is a strike or lockout that the tenant can’t control.

  

45. CONFIDENTIALITY 

Tenant acknowledges that the terms and conditions of this Lease are to remain confidential for Landlord’s benefit, and may not be disclosed by Tenant to anyone, by any manner or means, directly or indirectly, without Landlord’s prior written consent.  The consent by Landlord to any disclosures shall not be deemed to be a waiver on the part of Landlord of any prohibition against any future disclosure.

You must keep the terms of this lease confidential.  The landlord doesn’t want tenants to talk to one another about the terms of their leases.  The landlord is trying to get the best deal for each space in the shopping center or building.  If the landlord gives you consent to disclose a part of this lease, this does not invalidate this section and the need for confidentiality in other situations.  

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EXECUTED by Landlord and Tenant as of the day and year set forth below.

SCHEDULE 1

DEFINITIONS

“Alterations” shall mean the making or performance of any initial or subsequent Tenant finish work or any alterations, installations, decorations, improvements, additions, or other physical changes in or about the Leased Premises that are structural in nature or that exceed $10,000 in costs.

“Base Rent” shall mean the annualized amounts computed for the applicable period using the Monthly Base Rent shown in Section 1, multiplied by twelve (12), and payable as provided in Section 4(a).

“Building” shall have the meaning given in Section 1.

“Common Area(s)” shall mean the facilities and areas of the Building and Land that are intended and designated by Landlord from time to time for the common, general and non-exclusive use of all tenants and/or their invitees of the Building.

“Land” shall mean the land upon which the Building is located, as shown in the attached Exhibit B.

“Landlord” shall have the meaning given in Section 1.

“Lease” shall mean this Standard Shopping Center Lease Agreement.

“Leased Premises” shall have the meaning given in Section 1.

“Purchaser” shall mean any third party to whom the interests of Landlord under this Lease shall be transferred by reason of foreclosure or other proceedings for enforcement of any mortgage on the Leased Premises.

“Rent” shall mean all of the following: Base Rent; any Additional Rent and any other Lease costs; and any other sums that are or may become due from Tenant to Landlord pursuant to this Lease, including, without limitation, any amount that Landlord may spend or become obligated to spend by reason of any Event of Default by Tenant or to compensate Landlord for any damage, liability or expense caused to Landlord by such Event of Default or breach.

“Security Deposit” shall mean the deposit held by Landlord in the amount as set forth in Section 1.

“Shopping Center” shall mean the Land and the Building, landscaping, parking and driveway areas, sidewalks and other improvements thereon

“Tenant” shall have the meaning given in Section 1.

“Tenant’s Proportionate Share” or “Tenant’s Proportionate Share of Shopping Center” shall mean the percentage set forth in Section 1, determined by dividing the Rentable Square Feet of the Leased Premises by the Rentable Square Feet of the Shopping Center.  The Tenant’s Proportionate Share shall be adjusted if the size of the Leased Premises is modified.

“Termination Date” shall mean the date set forth in Section 1 unless this Lease shall be earlier terminated as provided for in this Lease.

EXHIBIT A

LEASED PREMISES

EXHIBIT B

LEGAL DESCRIPTION

Lot Four (4), in Block Two (2), of SMITHVILLE PLAZA, an addition to the City of Anytown, County of Any County, State of Any State, according to the map or plat therof recorded in Envelope 215B, of the Plat Records of Any County, Any State. 

EXHIBIT C

PROHIBITED USES

1. Notwithstanding anything to the contrary contained herein, the Leased Premises in no event shall be used for any of the following uses:

This Exhibit lists prohibited uses of the leased space.  This is to ensure the secure and peaceful use of the building by all tenants. 

a. Any pool or billiard room;

b. Any amusement arcade, bingo parlor, or game center;

c. Any type or kind of theater;

d. Any type of veterinary clinic or pet grooming business;

e. Any type of nightclub;

f. Any type of “head shop”;

g. Any massage parlor, modeling studio, or establishment where men or women are engaged in salacious activities or a sexually oriented business, including, without limitation, mud wrestling, table dancing, or topless or scantily dressed staff;

h. Any business engaged in the sale, or display or showing of movies of indecent or pornographic literature, or video products;

i. Any adult bookstore;

j. Any gambling establishment, eight-line establishment, off-track betting, lottery sales, or other similar or related businesses;

k. Any establishment that Landlord reasonably determines is likely to cause any disruptive or noxious noises, odors, vibrations, or otherwise be disruptive to the Shopping Center or any other tenants;

l. Any use prohibited by Applicable Laws;

EXHIBIT D

RULES AND REGULATIONS

1. Tenant shall not suffer or permit the obstruction of any Common Areas, including driveways, walkways, stairways, lobbies, landings, restrooms and parking areas.

Don’t block or obstruct the common areas.  

2. Landlord reserves the right to refuse access to the Shopping Center to any person or persons that Landlord, in good faith, judges to be a threat to the safety, reputation or property of the Shopping Center and its occupants.

The landlord can ban someone from the shopping center if deemed a threat to the property’s or other tenants’ safety or reputation.  

3. Tenant shall not make or permit any noise or odors that annoy or interfere with other tenants or persons having business within the Shopping Center.

Pretty self-explanatory.  I wouldn’t worry about this clause unless I ran a restaurant.  

4. Tenant shall not lay linoleum, tile, carpet or other floor covering in the Leased Premises so that the same shall be affixed to the floor of the Leased Premises in any manner or method except that first approved by Landlord.  The expense of repairing any damage resulting from a violation of this rule shall be borne by any Tenant by whom, or by whose contractors, employees, or invitees, the damage shall have been caused.  No painting shall be done, nor shall any alterations be done on any part of the Shopping Center or Leased Premises by butting up or changing any partition or partitions, door or doors, window or windows, nor shall there be any defacing of the walls, partitions or other surfaces without the written consent of Landlord being first obtained.  Tenant shall not permit any contractor or other persons making any alterations, additions or installations within the Leased Premises to use the hallways, lobby, or corridors as storage or work areas without the prior written consent of Landlord.  Tenant shall be liable for and shall pay the expense of any additional cleaning or other maintenance required to be performed by Landlord as a result of the transportation or storage of materials or work performed within the Shopping Center by or for Tenant.

This section reminds you that you cannot alter the leased space without prior written consent from the landlord.  

5. Tenant shall not keep animals, pets or birds within the Shopping Center and shall not bring bicycles, motorcycles or other vehicles into areas not specifically designated as authorized for same.

You can’t have pets, birds, bicycles, motorcycles, or other vehicles inside the leased space.  

6. Tenant shall not make, suffer, or permit trash or litter except in appropriate receptacles for that purpose.

7. Tenant shall not alter any lock or install new or additional locks or bolts in Tenant’s Leased Premises or in the Shopping Center without first obtaining Landlord’s approval.

You can’t change or add locks unless approved by the landlord.  Remember that the landlord has the right to a key to your space and to enter at any time with prior notice as per Section 34. 

8. Tenant shall be responsible for the inappropriate use of any toilets, restrooms, plumbing or other utilities.  No foreign substances of any kind are to be inserted therein.

This one is IMPORTANT as it actually comes up a lot.   If you, your employees, or your customers clog the sewer pipes, you can be held liable.   You should not flush wet wipes, tampons, or other materials down the toilet, even if the products are labeled “flushable  .” Additionally, no grease, food products, or other material should be put down any drain.

This sounds silly, but this is a serious problem that affects landlords.  They will enforce this clause if they can prove that it came from your leased space (which can often be done by scoping the plumbing).  

9. Tenant shall not suffer or permit anything in or around the Leased Premises or Shopping Center that causes excessive noise, vibration or floor loading in any part of the Shopping Center.  Landlord reserves the right to prohibit or impose conditions upon the installation in any Leased Premises of furniture, equipment, safe or any heavy objects which might overload the Leased Premises’ floor.  Tenant shall be responsible for any damage to the Leased Premises and the Shopping Center arising from any such activity.

Don’t make loud noises, vibrations, or overload the floor.

10. Tenant shall not employ any service or contractor for services or work to be performed in the Shopping Center, except as approved by Landlord.  No Tenant shall engage in the business of paying any persons in the Leased Premises or the Shopping Center except those persons actually and directly employed by or working for Tenant, nor shall any Tenant advertise for laborers or servants, giving an address of the Leased Premises.

The landlord must approve all contractors and subcontractors working on the leased space. 

11. Tenant shall return all keys at the termination of its tenancy and shall be responsible for the cost of replacing any keys that are lost.

12. No Tenant, employee, guest or invitee of Tenant shall go upon the roof of the Shopping Center.

This one is also IMPORTANT.  Most commercial buildings have flat roofs.  Some of these roofs may be sealed against water by a thin membrane.  These membranes can be damaged easily, which can cause water leakage into the underlying leased space.  If you are found to have caused the damage, even inadvertently, you will be held liable for the roof repair as well as any damage caused by the water leaking.  Stay off the roof.   

13. No boring, cutting, stringing, or installation of wires, telephones, telegraphs, or other electric apparatus and no exterior placement of telephone boxes, call boxes, and similar equipment shall be permitted except as may be set forth in any of the Tenant’s plans approved by the Landlord or with the prior written consent of Landlord, and shall be accomplished only as Landlord may direct. 

Again, all work must be approved by the landlord. 

14. Tenant shall not suffer or permit smoking or carrying of lighted cigars or cigarettes in areas designated by applicable governmental agencies as non-smoking areas, if such designation is made.

Smoking is prohibited if it is not permitted by the government.  Some leases just place a blanket no-smoking clause.

15. The Leased Premises shall not be used for lodging or manufacturing, or for any illegal, immoral or objectionable purpose.

You can’t live in the leased space nor allow anyone else to sleep there.  You can’t manufacture anything in the leased space.  You can’t use the space for anything immoral, illegal, or objectionable.  See prior clauses in the lease forbidding pornography, prostitution, gambling, and smoke shops.  

16. Tenant shall comply with all safety, fire protection and evacuation regulations reasonably established by Landlord or any applicable governmental agency.

17. Tenant assumes all risks from theft or vandalism and agrees to keep its Leased Premises locked as may be required.

The tenant assumes all risks in the lease for theft and vandalism.  You agree to keep your business locked when not in use.  This clause is not the same for every lease.  For large companies becoming tenants, this clause often states that if there is a certain amount of theft, vandalism, or break-ins, the tenant may exit the lease or have other remedies against the landlord.  

18. No flammable, combustible, explosive, caustic or poisonous fluids, chemicals or other substances shall be discarded in trash receptacles or enclosures or dumped in the sewer or drain systems.

19. Canvassing, soliciting, or peddling products or services to Tenants, Landlord expressly prohibits their employees or visitors and each Tenant shall cooperate with Landlord to prevent such practices.

You can’t go door-to-door within the shopping center to sell your products.

20. Parking areas shall be used only for parking by motor vehicles and such parking shall be in conformity with the markings of those areas.  Such parking use as a herein provided is intended merely as a license only and no bailment is intended or shall be created hereby.  Tenant shall not permit or allow any motor vehicles that belong to or are controlled by Tenant or Tenant’s employees, suppliers, shippers, customers or invitees to be loaded, unloaded, or parked in areas that interfere with pedestrian and motor vehicle ingress and egress to and from the Shopping Center and the parking areas. 

Bailment is a legal relationship in which the owner transfers physical possession of personal property for a time but retains ownership.  This section states that the landlord is letting you and your customers use the parking lot, but you do not own or even have physical possession of it.  

You also agree in this section not to block any ingress or egress (entrance or exit) to the shopping center and to not permit anyone to do so on your business’s behalf. 

The maintenance, washing, lubrication, oil change, repair, waxing or cleaning of vehicles in the parking area is prohibited. 

You can’t use the parking lot for vehicle cleaning, maintenance, or repair.  

Landlord will not be responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area.  Landlord reserves the right to change the entrances, exits, traffic lanes, boundaries, striping, and locations of any and all parking areas servicing the Shopping Center.

The landlord is not responsible for anything that happens to you, any automobiles, or any customers in the parking lot.  Additionally, the landlord can change the parking lot as they see fit.  

Landlord reserves the right to waive any one of these Rules or Regulations, and/or as to any particular Tenant, and any such waiver shall not constitute a waiver of any other Rule or Regulation or any subsequent application thereof to such Tenant.

The landlord can waive any of these rules for a particular tenant or situation, and it doesn’t negate the rest of the rules.  For example, the landlord may allow a tenant to manufacture something in a newly leased space (in violation of rule 15), but this does not mean that any other tenant can do the same.  

EXHIBIT E

CONSTRUCTION RIDER

The Leased Premises will be tendered to Tenant by Landlord in a “Shell” condition.  Subject to the following proviso, the term “Shell Condition” means that the Leased Premises shall have exterior walls and demising walls, roof, storefront, exterior door and concrete slab with plumbing (including fresh water and sanitary lines) leave-out located at the rear of the Leased Premises, plumbing stubbed to the rear of the Building, and electrical service provided to the rear of the Building.  Notwithstanding anything to the contrary contained in the Lease, the Leased Premises will not be in a Shell Condition at the time of the delivery of possession of the same to Tenant unless the Leased Premises is then in compliance with all Applicable Laws related to the same.  With respect to the interior of the Leased Premises and other areas, items, matters, and the like under Tenant’s control, Tenant shall be solely responsible for ensuring that the Leased Premises remains in compliance with all Applicable Laws and shall be solely responsible for all costs and expenses associated therewith.

This Exhibit states that the building is presented to the tenant as a “shell  .”The section defines what that means.  You agree to this by signing the lease. 

If the landlord will be performing the buildout of the space for the tenant, this Construction Rider section becomes incredibly important, as it will outline what will and won’t be done during construction.  If the landlord will build out your space, you should pay special attention to this section and have a commercial real estate or construction specialist review it with you.

EXHIBIT F

ENCUMBRANCES

DOCUMENTS OF RECORD SUPERIOR TO LEASE

This section shows documents that already exist that are superior to this lease.  This means that despite 

what is contained in this lease, it cannot take precedence over these documents.  Some are government

documents, such as #1 and #2, while the rest are concessions already made to existing tenants.  

Before a major tenant (think a well-known retail brand or restaurant chain) becomes a tenant, they 

want concessions that will ensure that the landlord will not allow similar businesses to open in the 

same shopping center, and often in any building the landlord owns withing a certain radius.  The tenant 

may also demand other concessions, such as restrictions on any “objectionable” businesses opening 

within the center.  

1. Declaration of Easements, Covenants, Conditions and Restrictions recorded in Volume 1822, Page 557 of the Official Public Records of Howard County, Texas on May 16, 2019.

2. All matters filed of public record that affect the Property [obtain title commitment for Lot 3]

3. FAST FOOD RESTAURANT #1 The Property shall not be leased, used, or occupied as a restaurant, food service establishment, drive-in or walk-up eating facility for a period of 20 years from the date upon which the XXXXX restaurant was opened for business to the public.  Provided, however, that any food service establishment which (i) offers as  the primary method of service for all eat items, food and drink orders taken by and served by a waiter or waitress at the customer’s table, and (ii) a fast-food pizza restaurant are excluded from the term “restaurant” and are accordingly permitted hereunder.  The term of this restrictive covenant will expire on January 8, 20__.

4. XX BBQ.  The Property shall not be used as a fast casual or take out restaurant engaged primarily in the sale or specializing in the sale of barbecue similar to that found on XX BBQ menu.

5. QQQQ ATHLETIC APPAREL.  Landlord shall not permit the use of any portion of the Center as any of the following: massage parlor; “adult book or video store” or similar business catering to pornographic interests; amusement center or game room (featuring, without limitation, pinball, electric and video game machines), except as an ancillary use in a restaurant or other permitted facility; bowling alley; tire, battery or auto parts retail location (where repairs are made in the Common Areas of the Center)’ skating rink; head shop; off-track betting facility; billiard parlor; automobile leasing facility; business operation generally referred to as a “flea market”; night club; comedy club; country and western bar; teenage facility; dance hall; or bingo parlor.

Landlord shall not permit any other tenant or other user in the Center (or in any other premises owned in whole or in part, or controlled, directly or indirectly, by Landlord or any person or entity which is an affiliate of Landlord outside the confines of the Center, but within a one (1) mile radius thereof) to conduct the Exclusive Use (defined below) either as its principal use or within a kiosk or in an area exceeding the lesser of one thousand (1,000) square feet or more than twenty percent (20%) of such other tenant’s respective premises, sales, or inventory (“Exclusive Covenant”); the measurement of such other tenant’s respective premises shall include any and all racks, tables, displays, etc. and the are used to access these by the customers.  For purposes hereof, the Exclusive Use shall be defined as the retail sale of sporting goods, athletic apparel, athletic shoes or sports fan licensed products.  Further tenants such as, for purposes of example and not in limitation, Encore Stores, Lids, Foot Locker, Finish Line, Shoe Department, Shoe Show, Rack Room . . . would be a violation of this provision.  Further still, “athletic shoes”, as used in the Exclusive Use, shall include, but not be limited to, any shoe whatsoever made or branded by: Adidas, Airwalk, . . . Nike, . . . Zoo York. 

EXHIBIT G

TENANT ACCEPTANCE LETTER

BIG BUSINESS, LLC

999 9^th St 

Anytown USA 55555

_____________________________________________________________________________________________________________________________

__________, 20__

Your Medical Business, PLLC

Attn: John Smith, MD

555 5^th St

Anytown USA 99999

Re: Standard Shopping Center Lease Agreement between Building Owner, LLC, as Landlord, and Medical Business, PLLC, as Tenant, for _____________________________, dated on or about _____________ ___, 2024 (the “Lease”)

Dear __________:

Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Lease.  Tenant acknowledges that:

1. Tenant has taken possession of the Leased Premises.

2. Tenant has inspected the Leased Premises.

3. The Leased Premises are satisfactory to Tenant in the present condition and for the purpose for which they were leased.

4. Tenant has ratified the Lease.

5. Landlord has completed all improvements required by the terms of the Lease to the satisfaction of Tenant.

6. Tenant has completed the Tenant’s Work in compliance with the Lease, has obtained a certificate of occupancy and is now entitled to the Tenant Improvement Allowance.

7. The Rent Commencement Date is established as ___________, 20__ and the Termination Date of the initial Lease Term is established as _____________, 20__.

8. The date upon which Tenant opened for business is established as ____________, 20__.

If you are in agreement with the foregoing, please acknowledge your agreement by signing where indicated below.

CONFIRMED AND AGREED:

LANDLORD:

Big Business, LLC

By: Jane Smith,

Its General Partner

By: _________________________

Jane Smith, Partner

TENANT:

Your Medical Business, PLLC

By: __________________________________

Name: __________________________________

Title: __________________________________

This document is signed after you, as the tenant, have taken possession of the leased space.  You are legally attesting to all the above conditions.  Most importantly, you attest that you have taken possession of and inspected the space and find it to be satisfactory for your purposes, that any work performed by you was done in compliance with the lease (according to code, with licensed contractors, etc.), and that you are satisfied with any work done by the landlord on your behalf.  

You can’t come back later and say that the landlord didn’t do what they were supposed to do (if they built out your space), or that the space doesn’t work for your business purposes.  Additionally, if there is any problem with the work you performed (or had performed), you are responsible.   

That concludes Medical Business Basics: Commercial Leases.  I hope you found this helpful and that it will prevent you from making mistakes that I have made as a tenant (and that I didn’t waste a colossal amount of my time writing this).  This information is meant to be used as an adjunct to, and not a replacement for, consultation with a real estate attorney or other commercial real estate professional.  The best-case scenario is for you to read through this and have a general understanding of commercial leases before you attempt to read through a commercial lease for your business.  A broad knowledge of the contents may help you save time and a substantial amount of money going through this point-by-point with a lawyer.  However, you should still use a professional and ensure that a) I am correct, b) you understood what I was saying, and c) the specifics of your particular circumstances.

Remember that everything is reasonably negotiable within a commercial lease, so ask for what you want.  If the landlord says no, at least you tried.  Also, remember that landlords need tenants as much as tenants need spaces to rent.  If it is a non-negotiable item for you, then walk away.  There are other buildings and other spaces to lease.  It’s better to have no deal than a bad deal.

Good luck with your business, and thanks for reading.  If you have any questions or comments, please leave them below.  Be sure to subscribe to the blog to receive future Medical Business Basics posts and all content from us at Business is the Best Medicine.