Landlords should avoid common drafting mistakes.

As collection counsel for several large commercial management companies, I have repeatedly seen drafting mistakes in leases that allow tenants to raise defenses. Being alert to these ambiguities and correcting them can improve a landlord's chances of collecting unpaid rent.

Commercial landlords typically use the Real Estate Board of New York preprinted form lease and then annex a rider. Paragraph 18 of that pre-printed form provides for landlord's remedies upon default. A tenant's attorney can exploit an apparent ambiguity and argue that the pre-printed form does not provide for the survival of the tenant's duty to pay rent if a tenant vacates from the premises before the expiration of the lease.

Typically after a tenant defaults and moves out, the landlord will re-enter the premises and fix up the space and try to market the space for the next tenant. Tenant's counsel can argue that this conduct constitutes landlord's "re-entry" within the meaning of Paragraph 18 and therefore, a tenant's duty to pay rent after such date ceases.

Tenant's counsel may also argue that any re-letting was for the Landlord's benefit, which, under various case law, relieves Tenant of the continuing duty to pay rent after vacature.

The boiler plate language of paragraph 18 of the pre-printed form lease sets forth as follows:

In Case of any such default, re-entry, expiration and/or dispossess by summary proceedings or other-wise, (a) the rent, and additional rent, shall become due thereupon and be paid up to the time of such re-entry, dispossess and / or expiration ... and the making of such alterations, repairs, replacements and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid.

This paragraph could be interpreted to cut-off tenant's liability to pay rent upon the happening of either the time of landlord's re-entry, the tenant's dispossess, or the expiration of the lease. Nowhere does the boiler plate specify: "whichever occurs last in time", or language to that effect. This author has been unable to find any case law interpreting the boiler plate language in paragraph 18 as enforcing unpaid rent and additional rent accruing after the landlord re-enters the space, or after a tenant vacates or surrenders.

Whether you use the pre-printed form or not, you should have express language in your leases providing for the survival of the duty to pay rent after a landlord re-enters, or after a tenant vacates or surrenders.

Recovery of a creditor's attorney's fees should not form the basis for a delay in entry of a judgment because a court has to inquire whether the fees are reasonable. In most instances, a court is willing to award summary judgment to a landlord. However, when a landlord seeks to have its attorney fees reimbursed by a tenant, the court may direct that an inquest be held to determine whether the fee is "reasonable". In New York County, it takes up to a year to get an inquest scheduled before a Judicial Hearing Officer (JHO), and then up to another year for that JHO to render his or her findings of fact to the Justice assigned to the case.

Regardless of how you pay your attorneys, to reduce the likelihood that attorneys' fees will delay an otherwise speedy road to judgment, attorney fee clauses should be replaced with an indemnity clause.

An indemnity and hold harmless clause from any and all expenses incurred in the event of default may allow some courts to dispense with the formality of holding an inquest to determine the reasonableness of a requested legal fee reimbursement if the court holds that it is bound to enforce the indemnity as written.

In Manhattan real estate it is customary for a commercial landlord to require a "Good Guy Guaranty", as landlord's condition to entering into the lease with Tenant. A Good Guy Guaranty differs from a Personal Guaranty by virtue of the guarantor's limited liability to pay rent for only that period of time that the commercial tenant remains in possession.

For this tool to work, the person executing the Good Guy Guaranty must have control over the tenant to direct a surrender to the landlord. The practice induces a commercial tenant to vacate after it becomes (or should become) apparent that the tenant can no longer afford to pay rent. The incidental benefit is that the tenant pays rent due up through the date of vacature or surrender to avoid personal liability for the principal. The collection case would then focus on unpaid rent arising after vacature.

Landlords should avoid hybrid personal guaranties and good guy guaranties. I have seen good guy guaranties where a guarantor forfeits the limitation of his personal liability if the tenant owes rent on the date of surrender.

In other words, the good guy guaranty converts to an unlimited personal guaranty if the tenant owes rent on the date of surrender. I respectfully submit that this is not a "good guy guaranty" because it ignores the basic purpose behind the instrument. A personal guaranty focuses on the recovery of rent and additional rent if the tenant defaults and then goes out of business. The good guy guaranty is more concerned with avoiding delay tactic employed by tenants to the surrender of possession of the demised premises.

Caution should also be used in using hybrids because there is little case law that upholds their enforcement before a judge. Attorneys drafting leases for landlords are advised to address issues by using the appropriate instrument. The timely recovery of possession is the primary purpose behind the good guy guaranty. Recognizing this will serve the landlord well.

While these proposed lease provisions address only some of the issues that have arisen when a landlord seeks payment, they represent the defenses that I most frequently come across. Correcting these problems speed up a recovery.