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BEWARE THOSE STANDARD FORM LEASES AND OTHER PROPERTY CONTRACTS

Monday, January 08, 2007
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BEWARE THOSE STANDARD FORM LEASES AND OTHER PROPERTY CONTRACTS
Frans van Hoogstraten

All too often one is presented with a standard form of lease, offer to purchase or other property contract, whether by a broker, developer or landlord. The natural reaction to these standard form contracts is that, being "standard forms" they must be fair and reasonable. Not so! Invariably these standard forms of contract are prepared by attorneys acting on behalf of their clients (whether the developer, broker, landlord concerned) and as such are designed to protect the client’s interests. They are often skilfully drafted and intentionally appear to be innocuous.

It is impossible for us to enumerate all of the onerous clauses that are frequently found in such agreements. They range from offers to purchase that constitute no more than an option to sell in favour of the developer; to sale contracts where customary warranties have been omitted or are drafted in such a way as to render them meaningless; to invalid renewal options contained in leases (the right to renew a lease at "a rental to be agreed upon" is a prime example!); to offers to purchase which provide for specific time limits but where such time limits are surreptitiously extended in another clause or the broker concerned is given the right to extend the time limit; and even to unintended suretyship obligations. These unintended consequences are discovered only when things go wrong – as they so frequently do.

It must be remembered that it is far easier to avoid a problem or dispute through the careful vetting of a contract before it is signed than it is to resolve the problem after a dispute has arisen and when, by virtue of the terms of the contract, the dice are loaded against you.

We urge clients not to readily accept standard forms of contract and particularly not to succumb to pressure from the agent or broker concerned that the deal will be lost if attorneys are consulted. It is far better to lose a bad deal than it is to regret having entered into one!