The Bank should review the lease agreement carefully to determine impediments that may affect the Bank’s remedies upon default by its borrower to become familiar with the rights of and restrictions on the tenant and the duties of the landlord.
Some of the key provisions to review in a lease agreement are the following:
•Parties: Who is the Tenant? Is it creditworthy? Is the Lease guaranteed? By whom? How much is the security deposit? Is it in a restricted/escrow account? Is there a letter of credit?
•Term of the lease: What is the original term? Is there a renewal option? If so is notice required? What is the price? Is there a cancellation option? A contraction option? An expansion option?
•Use: Is the intended use “legal”? Does it violate zoning? Does it violate a lease with other tenant?
o Legal description of the leased premises.
o Rental amounts and terms of payment.
o Statement of the tenant’s acceptance of the premises.
o Description of the use(s) to which the premises may be put.
o Obligations of the parties to the release regarding payment of taxes, maintenance of insurance, etc.
o Covenants regarding alterations, additions and improvements to the leased premises, maintenance of and removal of improvements to the leased premises upon termination of the lease.
o Covenants regarding casualty losses, use of insurance and condemnation proceeds, utility services and quiet enjoyment.
o Statements setting out the landlord’s lien, if any, on tenant improvements, events of default and rights relating to assignment and subletting.
o Force majeure provision (a provision excusing nonperformance for usually a limited period of time as a result of some unavoidable occurrence which prevented such performance).
o Subordination, non-disturbance and attornment provisions.
A provision in the lease restricting the pledge by the lessee of its residual interest in the leasehold goods is unenforceable. [UCC 9.407]