What is a Multiple Tenant Lease Agreement
A multiple tenant lease agreement is one owned by two or more tenants. Using several individuals to sign a lease agreement may be necessary due to poor credit scores of some applicants, previous evictions or crime histories of applicants. Landlords sometimes find it difficult to determine the financial and rental history of a tenant. A multiple tenant lease agreement can be helpful in ensuring that all parties to the lease will be responsible for the actions of any co-tenants.
Many rental agents use the same form lease agreement for all tenants. The landlordís agent can usually change the lease to include the names of multiple tenants. The lease should also have language that describes what will happen if one of the tenants fails to pay their share of the rent or damages to the property. If all parties agree to the language in the lease , they should print their names, city, state and date above their signatures. It is important that all tenants not only sign the lease but also sign a statement acknowledging that each tenant is jointly responsible for payment of the rent and any damages.
Landlords can also ask for a higher security deposit. Many landlords ask for the security deposit to be equal to two or three months rent. If the apartment could rent for $1,000 per month, the landlord could request $3,000 in a security deposit from the tenants. The assets, bank rolls and income of the tenants should be adequate to permit the landlord to exercise this option.
Key Components of a Multiple Tenant Lease
When you have multiple tenants, dividing up responsibilities could become a source of confusion. The elements below should be included in a multiple tenant lease and should be part of any division of tasks and services: Tenant Responsibilities. Divide tenant responsibilities so that you coordinate storage, exterior maintenance and dealing with disturbances. Division of Rent. Decide how you are going to divide the rent. In some cases one unit could pay a little more if it has more square footage. Security Deposits. Boil down security deposits to a few categories and divide them out accordingly. Amenities and Extra Services. Determine how last minute guests will be dealt with. If one of the units suffers an outage, how will the tenant be accommodated until the problem is fixed? Maintenance Obligations. Decide whether you will be responsible for repairs and maintenance, or whether it will be on the tenants to do some of their own upkeep.
The goal is to have a clear, concise document that clearly lays out both the landlords’ and tenants’ responsibility in order to avoid conflict.
Benefits of a Multiple Tenant Lease
A multiple tenant lease can be beneficial for both landlords and tenants. One of the premier benefits of a multiple tenant lease is that, in many cases, it costs less money over time. This is true because tenants often times share common facilities such as bathrooms and kitchens. A development without a multiple tenant lease may not have any common facilities and, therefore, comprehensive maintenance cost obligations are more difficult to administer and pay for.
Another benefit of multiple tenant lease agreements is that the flexibility to intermix tenant arrangements may aid in satisfying the varying needs of tenants and landlords. For example, if the property has several small spaces, it can be more marketable to a developer or a landlord to offer one tenant who wants the use of an entire space, as opposed to several tenants who will occupy the space. In addition, if the development is for office space, then a multiple tenant lease and leasing area with mixed configurations may be appealing to both large and small tenants who seek office space. For instance, a single tenant could use multiple floors or an entire wing of a building, while smaller tenants have the ability to occupy a smaller footprint on one floor. This can result in a higher return on investment for the developer or landlord.
Challenges and Solutions
While there are numerous advantages to facing several tenants with a single lease agreement, there is correspondently the risk of having several disagreements arising out of the same agreement. For this reason, it’s important for a landlord to understand and mitigate the common challenges that can occur with multiple tenant lease agreements.
Firstly, the use of shared spaces is almost a necessity with multiple tenants. But the lines can become very blurry when it comes to determining who pays for repairs and updates to those spaces. Such issues can also become contentious if one tenant is using the space significantly more than others. Are they expected to pay more rent? What about utilities — should everyone contribute equally to those costs?
A tenant who is upset with the other tenants’ common space usage may be more than willing to withhold rent until the issue is fixed, and consequently the landlord and innocent tenants may suffer as a result. So how do you solve such a problem?
Always address these types of issues in the lease agreement itself. Use clear language to define how the space will be split up and who is responsible for costs associated with it. Include calculations if multiple scenarios are involved. If necessary, use diagrams as well as text to convey the information most clearly.
Another major area of concern is payment. Late fees should be clearly specified in the lease agreement, as should details regarding what happens when a tenant doesn’t pay their portion of the rent. Ensure it’s absolutely understood that the property owner can take action against the entire group of tenants if one tenant has failed to pay their share.
Most importantly, ensure that the lease agreement offers a solution to the worst-case scenario of one tenant leaving without proper notice, abandoning the lease agreement along with their fellow tenants. Who will be responsible for finding a replacement, and how will that replacement’s rent be distributed? Outlining a proper plan is crucial before any potential issues arise.
It’s essential to specifically address how the lease agreement will be terminated in the event the lease is broken by the departure of one or more parties. Of course, tenants are likely to insist upon some manner of flexibility regarding the lease terms, so the lessor should be flexible as well, but shouldn’t feel compelled to put their property in jeopardy for the sake of a few individual tenants.
Legal Tips and Best Practices
When entering into a lease agreement for one of the properties within a commercial complex, understanding the existing legal framework is paramount to ensuring there are no potential future disputes. State and local laws governing landlord-tenant relationships must be carefully navigated from the very onset. For example, municipalities typically impose limits on the amount of rent that can be charged. First and last month’s rent may not be permitted. Moreover, many localities strictly regulate circumstances under which evictions may be carried out and the notice tenants must receive prior to being evicted. Abiding by these requirements may become even more crucial if a tenant suffers from various economic hardships, or if the physical occupancy of the entire development fluctuates from year to year. At the same time, landlords will want to ensure that their lease agreements do not conflict with existing local tenant protection ordinances that may apply to the commercial development.
Beyond state and local laws, the existing lease among tenants within a multi-tenant complex will have an impact on what is and is not permissible when it comes to negotiating terms and conditions with new tenants. In addition to measures that could affect a tenant’s right to remain in possession of the premises, a comparison of the proposed lease agreement should also be made against other existing agreements to ensure compliance with any existing limitations (e.g., renewal or expansion limitations, restrictions on build-outs, prohibited uses, pet policies and so forth).
It goes without saying that one of the best ways to avoid future litigation is to have an iron-clad lease agreement in writing. However, even existing tenants in multi-tenant complexes should not assume that previous tenants were bound to the same obligations and liabilities as the ones being negotiated. For instance, the tenant may be misled into thinking that the prior tenant successfully made improvements to an area of the tenant’s space that the landlord previously agreed would be made . Efforts should be made to secure the landlord’s written consent regarding build-outs and improvements made to the space to ensure that a landlord’s obligations are clear.
A landlord may impose a security deposit requirement that is intended to cure non-compliance with the lease (for example, with respect to utilities, insurance or other obligations). Although many landlords will require a deposit, it is critical that both parties understand if the deposit is intended to cure the breach or whether it may be used toward attorney’s fees and other damages. In some cases, landlords may actually be entitled to possession of the common areas subject to a ground lease and/or possessory rights of tenants. Accordingly, sewer, sewer impact and assessment fees may be required for some commercial space.
The ability to withstand natural disasters or other damage to the development itself will be of great importance to both landlords and tenants. While it is generally understood that landlords are responsible for all commons areas and amenities, understanding the limitations of these repairs or replacements is critical to the landlord and tenant alike. For example, while some lease agreements reference casualty losses and responsibilities, tenants often misunderstand the implications of such language.
Finally, insurance coverage is of utmost importance to both landlords and tenants in a multi-tenant complex. The type and amount of insurance coverage necessary will depend greatly on both the premises and the type of business that is being conducted in the new space. Terms such as "additional insured" and "addendum" should be clearly defined and understood by both tenants and landlords.
In sum, landlords and tenants alike should consider multiple factors before finalizing and executing lease agreements in complex. Having a thorough understanding of the legal implications of existing arrangements will ensure that neither party is left holding the bag when disaster strikes.
Creating an Equitable and Balanced Lease
Effective Drafting of a Fair Lease
In drafting a lease to cover multiple tenants, focus on a number of key issues to ensure that the lease agreement is fair and balanced, and does not inadvertently create future disputes or litigation risks. Where possible, include appraisals, buyout options and/or fair market valuations or other mechanisms that will create a fair resolution process if one or more tenants chooses to exit prior to the lease expiration date.
Whenever possible, have clear and unambiguous criteria by which the remaining partners will buy the exiting tenant. This criteria could be based on the market value of the partnership as well as the goodwill built up by the partnership. For example, if one of the tenants chooses to leave, he or she would receive his or her proportional share of the partnership contingent on the appraised value of the business at the time of the exit. An appraisal/tag-along option might be popular in some instances, but may not be appropriate for many businesses such as a small professional practice. In addition, if the exiting tenant was the founding partner, the remaining tenants may have a right of first refusal if the exiting partner sells his or her business interests to a competitor.
Conclusion: Successfully Navigating Multiple Tenant Leases
In conclusion, landlords and tenants would benefit from the advice that a so-called "standard" lease is rarely a good idea when multiple tenants are involved. As this article has addressed in detail, there are numerous considerations unique to each multiple tenant lease agreement. All tenants in a multiple tenant lease agreement should conduct their own due diligence prior to execution of the lease and, if the documents allow, demand concessions or clarifications from the landlord prior to executing the lease . The above summary of considerations in a multiple tenant lease is limited only by the creativity and energy of the negotiating parties to meet their interests in plain English. Together they should be able to come to a clear understanding as to the rights and responsibilities of each party under the lease.
