Limit Obligations Under Agreement to Reimburse Costs and Expenses

Commercial leases can be expensive to draft. In some cases, if a prospective tenant walks away from a deal after the owner has spent time and money preparing an individualized lease with tailored rights and options, the owner is stuck with a useless document—and the costs of creating it—and must start from scratch with a new prospective tenant.

That's why an owner you're negotiating with might ask you to sign an Agreement to Reimburse Costs and Expenses after you sign a letter of intent, obligating you to pay its lease costs if you don't sign the lease by a set date. But if you have to walk away from the lease for some reason, you don't want to be stuck paying for a document you didn't use. If the owner insists that you agree to pay its lease costs if you don't end up renting space from it, and you don't want to lose the opportunity to rent there, consider signing an Agreement to Reimburse Costs and Expenses—but strictly limit your obligations under it by specifying which costs you’ll pay.

Avoid the risk of paying tacked-on fees and expenses that aren't really the result of the deal falling through—don't give the owner an unfettered right to collect lease costs from you in the event of your backing out. While it's fair for the owner to have some security that its effort to get you as a tenant won't be wasted even if you decide to move on to another space, an Agreement to Reimburse Costs and Expenses should never provide the owner with a windfall. And an unlimited right to charge you for whatever lease costs it wants to could have that result. So limit the charges to the owner's “reasonable” fees and expenses—typically for attorneys and architectural or engineering consultants—and set caps for those charges.


Not a subscriber? Click here for a free trial issue!