Understanding AIR Lease Agreements & Potential Pitfalls

AIR Lease Forms

If you are an agent dealing primarily with California Association of Realtors’ forms, the AIR lease agreement is likely completely foreign to you. It is important to understand that the CAR (California Association of Realtors) and AIR (American Industrial Real Estate Association) forms vary significantly. If you are in a transaction in which you are using an AIR form, please pay careful attention to the details of the agreement. The AIR forms have been drafted for use by a commercial real estate practitioner. The AIR forms make a lot of assumptions about the professionals that use them, but one should not be intimidated by them. Like any form, you have to pay attention to the details.

For example, often overlooked when using the AIR Lease Agreement for Net leases is the automatic changes that can occur to the base rent. The AIR lease agreement, like most lease agreements, requires a tenant to allow for inspections, as well as provide estoppel certificates when requested. Failure to cooperate with an inspection or an estoppel request, allows the Landlord to increase the base rent by 10% or $100, whichever amount is greater. More importantly, the landlord does not have to provide the tenant any notice or allow the ability to mitigate the failure. This provision is certainly pro-landlord and one that a tenant may not expect when signing a lease.

In addition to the increase in the base rent, the failures previously discussed trigger other provisions in the AIR lease agreement. One such provision is the security deposit provision. Pursuant to the terms of the AIR Lease agreement, any increase in the base rent also requires an increase in the security deposit in proportion to the base rent increase. However, the request for additional monies to fulfill a tenant’s security deposit obligation must be done in writing by the landlord.

These examples only illustrate how important it is for the commercial real estate practitioner to know the AIR Agreement and provide proper guidance to their client. As a side note, the provisions discussed in this post can all be negotiated and deleted from the agreement. However, one must know they are there before you start the negotiation.

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