Why crystal clear contracts are so, so critical…

Why crystal clear lease contracts are so, so criticalYou’ve heard the phrase “stating the obvious”. But when it comes to lease agreements it is interesting to consider how often we haven’t done just that; state the obvious.

The reason I mention this is that ambiguity in lease documents is the greatest cause of disputes between tenant and landlord. And sometimes even sharp operators haven’t predicted that something unclear in the lease would lead to a conflict.

Lack of clarity in a lease can sometimes be about something as obvious as the timing of rental payments.

This is a critical area for landlords as the viability of their companies can sometimes be extremely dependent on cash flow from rental streams. Delays can spell bad news for keeping up with their own loans and commitments to shareholders.

And tenants, a lack of clarity around the timing of rental payments can also be a source of dispute. For example, a lease could be drawn up to start on 1 February 2010, and payments scheduled to commence then. But an issue between, say, a local council and the building owner over a building permit might delay occupancy, leaving a tenant paying for premises they cannot immediately use.

This might sound obvious, but time and again I have worked with clients on disputes where these issues have been unclear in the lease. An agreement to lease and a deed of lease need to be crafted carefully to cover all these contingencies.

As well as rental payments, the main source of dispute in an unclear lease is most often over WHO is responsible for WHAT in a building.

I struck a case recently in a provincial town where both landlord and tenant didn’t live locally. Neither had seen the building for some time and the tenant, on visiting their business there, was upset to find mould on the building, threadbare carpets and overgrown gardens.

It hadn’t been clear who was responsible for this maintenance.

Neither party had been aware of the wear & tear and each blamed the other for the state of the building. We worked with the parties to diffuse the anger and clarify their responsibilities, before the dispute turned into an expensive legal wrangle.

The point is that leases must be in plain English that covers all the eventualities that might come up over the term of your lease. A well-crafted lease will often prevent a dispute arising at all.

Not all real estate or legal advice is going to take account of these specific needs, and I advise clients to seek expert market advice to make sure their contracts are crystal clear and will have no surprises.

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