New form of Commercial Lease Agreement « McTaggart & Associates

	NEW NTCAR COMMERCIAL LEASE FORM By Robert D. McTaggart October 15, 2008 On August 27, 2008, the Board of Directors of the North Texas Commercial Association of Realtors (“NTCAR“) approved a new form of Commercial Lease Agreement to replace the previous version of the form that was published in 2001. The new form has been published as part of a group of forms that can be completed using software designed for that purpose. To obtain software to enable you to use the form, you may contact NTCAR at (214) 638‑5525. Most of the changes that were made to the form were to clarify some language and make the form easier to read. At first glance, the new form appears to be much longer than the previous form. The biggest reason for the increased number of pages in the new form is a larger font to make it easier to read (for us older folks). We also added more white space. A few of the more substantive changes are: A new Base Rent Payment Schedule Addendum was created for those leases that have Base Rent payments that change during the term of the lease. The late charge provisions were changed to provide for a one-time late charge of 10% after a payment is more than five days past due, rather than a daily late charge. The security deposit provisions were changed to provide that the Landlord must refund the unused portion of the security deposit within sixty (60) days after the date the tenant surrenders possession of the premises and provides a written notice to the landlord of the tenant’s forwarding address. This is consistent with Section 93.005 of the Texas Property Code. A waiver of the tenant’s right to protest the tax assessment of the property was added. This is in response to the right that was given to tenants to protest taxes by Section 41.413 of the Texas Property Tax Code. The provisions pertaining obtaining a certificate of occupancy (a “CO“) for the premises were modified. The previous form of the lease allowed the tenant to terminate the lease if the tenant is unable to obtain a CO. The new form retains that right, but gives the landlord 15 days to cure any defects and get a CO to keep the lease in force. The “AS IS” provisions of the lease were expanded to include a waiver by the tenant of any implied warranties as to the fitness or suitability of the premises for any particular use. This change was prompted by the recent Texas Supreme Court case Gym-N-I Playgrounds, Inc. v. Snider, 220 SW3d 905 (Tex. 2007). The commission provisions were revised to include the possibility that a commission may be calculated on a price per square foot rather than a percentage of the rent. The NTCAR forms committee received input from some retail brokers that commissions are sometimes paid on a square foot basis in retail leases. A Patriot Act representation was added in Section 16.4 of the form. The provision is a representation by both the landlord and the tenant that they are not on the list of persons that are not allowed to do business in the United States. Also, the provision serves as a reminder that we are required to check the list before entering into an agreement (including a lease) with anyone. The list can be found at http://www.treas.gov/offices/enforcement/ofac The expense reimbursement provisions of Addendum A were revised to help make the Addendum easier to understand. Also, franchise taxes were added in the definition of “Real Estate Taxes.” Much has been written about the recent changes to the franchise tax laws in Texas, and the impact of those changes on landlords. Many landlords are structured as limited partnerships, which are now required to pay franchise taxes on gross revenues. Landlords are arguing that they should be allowed to pass franchise taxes through to tenants on the basis that the expansion of the franchise tax was justified by the legislature as something that would enable real estate taxes to be reduced. The NTCAR forms committee decided to include franchise taxes in the definition of Real Estate Taxes in the new lease form. An acknowledgement was added to the form of Guaranty. Although it is not necessary to have a signature on a guaranty acknowledged, the NTCAR forms committee was aware of situations where guarantors claimed that the signature on the guaranty was not genuine. The forms committee wanted an acknowledgement on the form to help prove the authenticity of a guarantor’s signature. We added a comment that states that failure to complete the acknowledgement has no effect on the validity or enforceability of the guaranty. The Information About Brokerage Services form required by the Texas Real Estate Commission was added as a new Addendum “I”. Although a broker is typically required to give the form to the landlord or the tenant before a lease is signed, having the form as an addendum to the lease will help the brokers prove that the form was delivered to the parties. A number of brokers and attorneys provided valuable input and work on the new form. Bill Roth is an attorney and a real estate professional who is Chairman of the NTCAR Forms Committee, and his insight and attention to detail were invaluable in connection with the revision of the NTCAR forms. Brian Jetty is the Executive Officer of NTCAR, and his support in the revision of the NTCAR forms is gratefully acknowledged. ROBERT D. McTAGGART McTaggart & Associates 5910 N. Central Expressway, Suite 350 Dallas, Texas 75206 (214) 265-1914 www.mctaggartlaw.com Robert D. McTaggart is Board Certified as a specialist in the area of Commercial Real Estate Law by the Texas Board of Legal Specialization. Mr. McTaggart practices in the areas of real estate law and business law. He served as Chairman of the Dallas Bar Association’s Real Property Law Section. He has been recognized as a “Super Lawyer” by a peer review process conducted by Texas Monthly magazine. Only 5% of lawyers in Texas have achieved this distinction. He is President of the law firm of McTaggart & Associates, and works with buyers, sellers, owners, landlords, tenants, investors, lenders and others to help complete real estate and business transactions. He also serves as legal counsel to the North Texas Commercial Association of Realtors^®. Robert D. McTaggart has earned a rating of “AV”, the highest possible rating given to attorneys and law firms by Martindale-Hubbell, the publisher of the most widely recognized law firm directory in the United States. “AV” is a registered certification mark of Reed Elsevier Properties Inc., used in accordance with the Martindale-Hubbell certification procedures, standards and policies. Martindale-Hubbell is the facilitator of a peer review rating process. Ratings reflect the confidential opinions of members of the Bar and the Judiciary. Martindale-Hubbell Ratings fall into two categories – legal ability and general ethical standards. “A” is the highest rating for legal ability, and “V” is the highest rating for ethical standards. ©2008 Robert D. McTaggart The analysis, conclusions, and opinions expressed in this article do not constitute legal advice.

NEW NTCAR COMMERCIAL LEASE FORM

Robert D. McTaggart

October 15, 2008

On August 27, 2008, the Board of Directors of the North Texas Commercial Association of Realtors (“NTCAR“) approved a new form of Commercial Lease Agreement to replace the previous version of the form that was published in 2001. The new form has been published as part of a group of forms that can be completed using software designed for that purpose. To obtain software to enable you to use the form, you may contact NTCAR at (214) 638‑5525.

Most of the changes that were made to the form were to clarify some language and make the form easier to read. At first glance, the new form appears to be much longer than the previous form. The biggest reason for the increased number of pages in the new form is a larger font to make it easier to read (for us older folks). We also added more white space.

A few of the more substantive changes are:

A new Base Rent Payment Schedule Addendum was created for those leases that have Base Rent payments that change during the term of the lease.

The late charge provisions were changed to provide for a one-time late charge of 10% after a payment is more than five days past due, rather than a daily late charge.

The security deposit provisions were changed to provide that the Landlord must refund the unused portion of the security deposit within sixty (60) days after the date the tenant surrenders possession of the premises and provides a written notice to the landlord of the tenant’s forwarding address. This is consistent with Section 93.005 of the Texas Property Code.

A waiver of the tenant’s right to protest the tax assessment of the property was added. This is in response to the right that was given to tenants to protest taxes by Section 41.413 of the Texas Property Tax Code.

The provisions pertaining obtaining a certificate of occupancy (a “CO“) for the premises were modified. The previous form of the lease allowed the tenant to terminate the lease if the tenant is unable to obtain a CO. The new form retains that right, but gives the landlord 15 days to cure any defects and get a CO to keep the lease in force.

The “AS IS” provisions of the lease were expanded to include a waiver by the tenant of any implied warranties as to the fitness or suitability of the premises for any particular use. This change was prompted by the recent Texas Supreme Court case Gym-N-I Playgrounds, Inc. v. Snider, 220 SW3d 905 (Tex. 2007).

The commission provisions were revised to include the possibility that a commission may be calculated on a price per square foot rather than a percentage of the rent. The NTCAR forms committee received input from some retail brokers that commissions are sometimes paid on a square foot basis in retail leases.

A Patriot Act representation was added in Section 16.4 of the form. The provision is a representation by both the landlord and the tenant that they are not on the list of persons that are not allowed to do business in the United States. Also, the provision serves as a reminder that we are required to check the list before entering into an agreement (including a lease) with anyone.

The list can be found at http://www.treas.gov/offices/enforcement/ofac

The expense reimbursement provisions of Addendum A were revised to help make the Addendum easier to understand. Also, franchise taxes were added in the definition of “Real Estate Taxes.” Much has been written about the recent changes to the franchise tax laws in Texas, and the impact of those changes on landlords. Many landlords are structured as limited partnerships, which are now required to pay franchise taxes on gross revenues. Landlords are arguing that they should be allowed to pass franchise taxes through to tenants on the basis that the expansion of the franchise tax was justified by the legislature as something that would enable real estate taxes to be reduced. The NTCAR forms committee decided to include franchise taxes in the definition of Real Estate Taxes in the new lease form.

An acknowledgement was added to the form of Guaranty. Although it is not necessary to have a signature on a guaranty acknowledged, the NTCAR forms committee was aware of situations where guarantors claimed that the signature on the guaranty was not genuine. The forms committee wanted an acknowledgement on the form to help prove the authenticity of a guarantor’s signature. We added a comment that states that failure to complete the acknowledgement has no effect on the validity or enforceability of the guaranty.

The Information About Brokerage Services form required by the Texas Real Estate Commission was added as a new Addendum “I”. Although a broker is typically required to give the form to the landlord or the tenant before a lease is signed, having the form as an addendum to the lease will help the brokers prove that the form was delivered to the parties.

A number of brokers and attorneys provided valuable input and work on the new form. Bill Roth is an attorney and a real estate professional who is Chairman of the NTCAR Forms Committee, and his insight and attention to detail were invaluable in connection with the revision of the NTCAR forms. Brian Jetty is the Executive Officer of NTCAR, and his support in the revision of the NTCAR forms is gratefully acknowledged.

ROBERT D. McTAGGART

McTaggart & Associates

5910 N. Central Expressway, Suite 350

Dallas, Texas 75206

(214) 265-1914

www.mctaggartlaw.com

Robert D. McTaggart is Board Certified as a specialist in the area of Commercial Real Estate Law by the Texas Board of Legal Specialization. Mr. McTaggart practices in the areas of real estate law and business law. He served as Chairman of the Dallas Bar Association’s Real Property Law Section. He has been recognized as a “Super Lawyer” by a peer review process conducted by Texas Monthly magazine. Only 5% of lawyers in Texas have achieved this distinction. He is President of the law firm of McTaggart & Associates, and works with buyers, sellers, owners, landlords, tenants, investors, lenders and others to help complete real estate and business transactions. He also serves as legal counsel to the North Texas Commercial Association of Realtors^®.

Robert D. McTaggart has earned a rating of “AV”, the highest possible rating given to attorneys and law firms by Martindale-Hubbell, the publisher of the most widely recognized law firm directory in the United States. “AV” is a registered certification mark of Reed Elsevier Properties Inc., used in accordance with the Martindale-Hubbell certification procedures, standards and policies. Martindale-Hubbell is the facilitator of a peer review rating process. Ratings reflect the confidential opinions of members of the Bar and the Judiciary. Martindale-Hubbell Ratings fall into two categories – legal ability and general ethical standards. “A” is the highest rating for legal ability, and “V” is the highest rating for ethical standards.

The analysis, conclusions, and opinions expressed in this article do not constitute legal advice.

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