Back in college days, June was the month of moving. You were thrown out of the dorms for summer, and either headed home or moved into a 3-month sublet until fall living options arrived.

Sublets require a lease agreement, unlike the dorms, where any paperwork normally restricted itself to enrollment proof and that you knew they would hold your diploma if you wrecked the place. 

But a lease was another animal altogether. Based upon myriad tales of lease-borne woe railed at me by friends and their older siblings, I knew legal minefields and tenant traps lurked within those seemingly innocent clauses and codicils. Yet, as the need for a place to crash far outweighed my access to proper legal advice and counsel, I signed. 

Looking at the insurance exhibit of a current commercial lease emailed to me by an agent reader, not much has changed. As an older and wiser consumer of legal documents, however, one thing I was totally unaware of back in my college days is now perfectly clear: Lease attorneys are paid by the word. 

There can be no other reason for the incredible jumble of vagueness with seeming exactitude, of everyday terms commingled with legal jargon, or the endless amount of wordplay overkill—and that's just the tenant's insurance requirements. My agent friend tells me the remainder of the lease runs almost another 50 pages. Clearly the drafting attorney and landlord feel there is more at risk here than on-time rent and a sufficient damage deposit.

If this were solely an issue between a self-interested landlord and a motivated tenant, so be it. Let the games begin. But where it enters the realm of our concern is that very insurance exhibit—the one the tenant is going to bring into your agency, request proof to the landlord that his current insurance fulfills all the requirements, and then upon your asking for a few days to review the specifics sheepishly admits he has not only already signed the lease, but moved in yesterday. Oh, and is there any way you could email the COI showing all the needed lease-mandated coverages to the landlord right away?

More than a few of my colleagues disagree with my contention that agents who are not attorneys or possessing extensive legal backgrounds should avoid any offer to provide free contract analysis to clients. Offering to review a contract implies that you are capable of spotting every contractual error and mistaken nuance anywhere in the contract, when in reality you are normally only looking for the insurance requirements. If at the least you will provide a disclaimer to your insured that all you are doing is reviewing the specific insurance provisions as compared with current insurance in place, then at least you have somewhat limited your potential liability and made your E&O carrier happier.

Yet danger lies even within those limited woods. Here are just a few brief observations about the Tenant's Insurance Requirement exhibit I received:

  • Under commercial liability insurance, it requires the following: "including, without limitation, water and sprinkler damage, and shall include so-called contractual liability coverage over the indemnities of Tenant under this Lease." Just this one phrase opens potential pitfalls for the unwary tenant and agent. First, why do you include water and sprinkler leakage to the leased premises under a CGL, which only responds to fire, when these come more properly under property coverages? Second, "without limitation" is a bottomless pit of potential error. What insurance in the universe exists "without limitation," yet the tenant just agreed to find and purchase same? And third, I'm not clear on the implications of the evidently precise legal term "so-called contractual liability" but I darn well know whatever it is will not respond to all the "indemnities of Tenant under this lease"—and at nearly 50 pages, you know there are a ton of them.
  • In the section discussing property requirements (which the lawyer labels "Casualty Insurance"), the following sentence addresses what limits of coverage tenant must carry: "…in an amount adequate to cover the full replacement cost of all improvements…" Consider the unspecified implications. Who determines what constitutes "full replacement cost"? The landlord? A contractor at time of loss? And even if the declared limits on the policy appear to meet the requirement, what happens if the actual claim payment is impacted by policy limitations or conditions? Coinsurance, anyone?
  • In a later section, referring back to the CGL: "The policies referred to in Paragraph 1(a) above shall name Landlord, its members, managers and agents, and each of their respective members, managers, partners, shareholders, directors, officers, agents and employees of any tier, and such other parties as landlord shall from time to time designate as additional insureds (collectively, the "Additional Insureds" or individually, an "Additional Insured"). While this is clearly overkill, at least there may be additional insured endorsements available to make this somewhat doable, except for two additional words in the first phrase: "shall name." So much for blanket or automatic additional insured endorsements complying with these terms; each person in the list, and all future additions, deletions, evidently must be specifically named. Surprised the attorney didn't just work in another "without limitation" here and be done with it.

Related: Read another Amrhein column "Playing COI."

Other potentially awkward issues for agents found in the insurance requirements consider if business income coverage for rents will be adjusted automatically for any future rent increases as "reasonably estimated" by the landlord; that the liability coverages shall be primary as to coverage carried by landlord and all additional insureds (true if all parties are utilizing ISO CGL forms; all bets are off if not); that the requirements that all coverages required by the lease must be free of impact or impairment by other locations or operations of tenant (in this case tenant has multiple other locations under separate leases and landlords; there goes the tenant's overall package policy or blanket property coverage options); and that all defense costs be provided outside the policy limits (generally true for all ISO CGL forms, but could be an issue if umbrellas or liability forms other than general liability become involved).

One other sentence contains way too much vagueness and "wiggle room" for my comfort zone: "In addition, Landlord shall have the right from time to time to require Tenant to increase the amounts of the foregoing coverages and/or carry other or additional insurance coverages and/or endorsements to coverages in such amounts as Landlord shall reasonably deem to be prudent for tenants of the Building to carry, provided that such coverages and amounts are commercially reasonable and customary for landlords to require in the area where the Property is located." 

Why does this bother me? Let us count the ways:

  1. Landlord in effect creates lease "requirements" the tenant must agree to, yet the landlord can change from "time to time"— hourly, monthly, bi-annually? 
  2. What does "reasonably deem to be prudent" mean? And how is a tenant or agent to argue against landlord requests felt to be neither "reasonable" nor "prudent"?
  3. What is "commercially reasonable," and in whose opinion? There may be a vast gulf between what the landlord maintains is easily affordable and obtainable and what a tenant can obtain or afford—or his agent can find. Add the risk of the tenant's agent being knocked out of the account because they don't have the same access to broader pricing and markets as the landlord's to the "hidden threat" list. 

So we arrive at two key questions. First, is any agent paid enough to get in the middle of this swamp, either from the legal landmines standpoint or certifying coverage requirements that may only exist in the fondest imagination of the landlord and his attorney? And secondly, as a direct corollary to the first as well as possibly the far more important real-life question, where is the tenant's attorney in all this?

Attorneys that I know have said it is not their job to look out for anyone other than their client, whether representing in court or drafting legal documents. As one put it, "My job is to ask for the moon. It's the other party's job to tell me I can't have it." 

And for critical legal documents, that means another attorney. One who speaks the language. One who can look the other attorney in the eye and say without doubt, "That wording is bull and you know it. Fix it or I tell my client to walk." Sure, the tenant may be unhappy at losing a desired location. But that is what you pay legal counsel for: revelation of the unknown, advice for the unwary, clarification of the obtuse. And once the dust settles, we can step in and truly address the now clearly delineated coverage requirements with a "yes, no, on whose planet or let me get with the carrier."

Now that I think on it, that old dorm room taught me a great contractual analysis lesson: When it comes to the handwriting on the wall, sometimes what looks like mere soapy nonsense in everyday light reveals itself to have entirely different meanings when exposed to the exact proper lighting. Attorneys as black lights: who knew?

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