What Is a Lease Amendment?

Once a lease is signed, the parties can agree to change it. An amendment leaves the original lease in place and rewrites only certain parts, which is why an amendment may be numbered first, second and so on over the years. The lease plus all of its amendments, read together, is your current deal.

Common reasons include:

• Renewing or extending the term.
• Adding or giving back space.
• Changing rent, often as part of a restructuring in the middle of the term.
• Changing a date, a notice address or the legal name of a party.
• Adding an allowance or new options.
• Documenting a landlord consent or settling a dispute.

Keep all of it in writing. A Hogan & Hartson (now Hogan Lovells) article on estoppels makes the point that if a lease is going to change, both parties should do so with an amendment they both sign. Many leases also bar oral changes. Courts do not always stop there, though. Keating Muething & Klekamp reports that under Ohio cases a no-oral-modification clause can be waived by conduct, and in one case about eight years of reduced rent, accepted without objection, was treated as clear conduct. State law varies, and that is a dispute you want to avoid, not a plan to rely on.

Many renewals are amendments. If your lease has a renewal option, exercising it may lead to a short amendment documenting the new rent and term. If you negotiate without using an option, the amendment holds the whole deal. In either case, it replaces some terms and silently keeps the rest, so review the old lease as carefully as the new document.

A renewal is a chance to fix what has not worked. A clause you could not get changed as a new tenant may be open now that the landlord wants to keep you. If you negotiate only rent, the rest of a lease you signed years ago rolls forward unchanged. A renewal can be a good time to ask for an allowance, updated options and a cleaner restoration clause.

A mid-term amendment can also create value, especially if you hold a right the landlord wants to remove. One client described a mid-term restructuring this way:

That outcome reflects that tenant’s specific lease and leverage. The general point is that an amendment is a negotiation, and Tenant Advisory Group, which represents tenants and buyers, treats it as one and not as paperwork.

A side letter is a separate, usually shorter agreement between the parties, sometimes used for something that is temporary or specific to one tenant. Much published commentary on side letters comes from outside the US, and the law may differ here, so ask your attorney. The questions it raises still travel well.

Higgs LLP, a UK firm, says side letters are best used for temporary matters, and that permanent or significant changes should be formally documented. It warns that a side letter may not bind a new owner if the building is sold, depending on how it is written, and that side letters and guarantors can be a difficult mix.

• Would this bind a buyer or lender? If the building sells, you need to know whether the next owner is bound.
• Is the benefit personal to you? If you assign the lease, does it end?
• Does the lease’s integration clause or the next amendment wipe it out?
• Would it be disclosed if you sign an estoppel certificate?

That last question has a clear answer in practice. Maslon, a Minneapolis firm, recommends that the description of the lease in an estoppel certificate include all addenda, amendments and any relevant side letters, because leaving a document out could cost you its benefit after a sale or foreclosure. For anything you would hate to lose, ask for an amendment.

If a landlord offers a concession "by side letter," ask why it cannot be in the amendment. There may be a sound answer, but you should hear it before you sign.

Near the end of many amendments is a paragraph that says, in substance, that except as modified, the lease remains in full force and effect and is ratified and confirmed. A longer version may also have the tenant ratify all of its obligations and state that it knows of no defenses, setoffs or claims.

Read this language as an operative term, not boilerplate. The basic version confirms the terms you left unchanged, including ones you may have forgotten. The longer version may be more significant. If you have an open dispute over operating expenses, an unpaid allowance or an unfinished landlord repair, stating that you have no claims may damage your position. Ask your attorney to carve out known issues, limit the statement to your actual knowledge, or settle the dispute in the amendment.

• ✓Do the parties’ names match the current landlord and tenant, including any successors?
• ✓Does it identify the original lease and all prior amendments correctly?
• ✓Does each change replace the old term clearly, or does it leave two terms that conflict?
• ✓Do defined terms mean the same thing here as in the lease?
• ✓Do existing renewal, expansion, termination and first-offer rights survive, end or restart?
• ✓Is rent stated by period, and is the base year or expense stop updated if needed?
• ✓Does the improvement or restoration obligation change with the new term?
• ✓Do any personal guaranties extend or end? Is a release available?
• ✓Does the ratification paragraph say anything about no defaults or no claims, and is that true?
• ✓Does the landlord’s lender have to consent, under the loan documents or an SNDA?
• ✓Is the signer on each side authorized, and do we have a fully signed copy?
• ✓Has our lease abstract been updated?

Two of these deserve more attention. The first is guaranties. Landlords may ask a guarantor to reaffirm a guaranty when a lease is amended. Noble Allen of Hinckley Allen explains that in some jurisdictions, if the guarantor did not sign a reaffirmation, the legal concept of novation may nullify its initial obligations. Illinois guarantors have still been held liable after an amendment they did not sign, where the guaranty was written to survive lease changes and the amendment did not change their financial obligations. So if you are a guarantor, do not assume you are off the hook, and treat the amendment as your opening to ask for a release or a reduced scope.

The second is the lender. Holland & Hart notes that an SNDA may require the lender’s consent to lease amendments. Ask the landlord to confirm whether consent is needed and whether it has been obtained, and ask your attorney what a missing consent could mean in your case.