Tenants – Think Twice Before Signing That AIR Lease Form

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After searching for months, maybe even years, to find the perfect location for your new company headquarters, you finally located it and negotiated the perfect business deal with the landlord.  As you wait to receive the lease from the landlord, anxiety starts to set in. Will the proposed lease be 10 or 100 pages; include reasonable or unreasonable terms?  A few days later, the landlord’s broker sends over an American Industrial Real Estate Association (“AIR”) form lease for you to review.  You think to yourself – an AIR form lease? Jackpot! No need to spend needless hours reviewing the preprinted language.  After all, this is a standard form lease, intended to be fair and balanced for both landlord and tenant…. right? WRONG.

Unfortunately, tenants often mistake the appearance of the AIR preprinted form to mean that the terms are fair, balanced and protect both parties equally. But this is simply not the case. Despite being widely utilized in commercial transactions, the AIR form leases continue to include provisions which protect both the landlord misand the real estate brokers to the detriment of the tenant.

Typical Issues of Concern for Tenants

Take common area operating expenses as an example. As a result of the broad definition and lack of constraints surrounding the concept, arguably a tenant could be obligated to pay for expenses charged by landlord as common area expenses which arguably are not operating expenses at all – such as costs incurred collecting rent from other tenants, loan interest charges, costs of filing tax returns and travel expense.  And to throw more fuel on the fire, pursuant to the AIR Form, a tenant has no right to audit the landlord’s books and records to verify the accuracy of the common area expenses charged by the landlord without a court order.

As another example, the landlord is exempt from liability under various circumstances including injury to person, property or your business resulting from any cause, whether or not such damage resulted from the landlord’s negligence or breach of lease.  A landlord has no obligation to indemnify or defend a tenant against any claims or losses suffered as a result of its actions or inaction, including any failure to maintain the common areas or building structures under its control.  On the other hand, a tenant has very broad obligations to indemnify and defend the landlord and other third parties.

And these are just a few of many provisions that need to be reviewed and negotiated by a tenant.  Surprised? If you are, you are not alone.

Key Steps to Protect Tenants

So, what’s a tenant to do? Traditionally, the AIR lease forms have been landlord-oriented and designed to protect the commercial real estate brokerage community.  While the AIR lease forms have become more tenant-friendly in recent years, tenants should take care in reviewing an AIR form to ensure it includes the terms expected/negotiated before signing it. Make sure you review and understand all of the terms of that lease form – preprinted or not – or hire knowledgeable legal counsel to advise you.  The extra time spent upfront will help eliminate any future disputes.

*Please note that there are various AIR Forms, each of which contains different terms. This article is not meant to analyze or apply to the terms in every AIR Form but is instead meant to be a generalized review of certain provisions contained in the more popular or utilized lease forms.

Jennifer Stroffe is a Shareholder in the Real Estate and Corporate Department of Friedman Stroffe and Gerard PC, a Top 100 Orange County law firm located in Irvine. She can be reached at [email protected]; (949) 265-1100.