Last month, we located a good space candidate and drafted a letter of intent. Now begins the long process of drafting a final lease. This is a complex process and you will need several things to complete it successfully: first and foremost, a lawyer. Commercial leases are quite complex and can be up to 60 pages long.

As a special bonus, there are few templatized theatre leases available to smaller commercial landlords, so you will probably get a lease adapted for some other use such as retail. Not running a donut shop in a strip mall? Be prepared to excise clauses about grease disposal.

The first thing to scan for is to verify that the terms of your offer letter are replicated. Often, these will be expanded to provide a range of specifics regarding rent abatements, increases, renewals, insurance and so forth. You might be surprised how some of those offer details translate in the lease. In one instance, the crafty landlord offered the requested improvements as rent abatements. Say a requested elevator would cost $75,000 to install. We were being allowed to deduct that from the rent at a rate of $5,000 a month. Unfortunately that created some serious cash flow problems. Free rent for 14 months sounds attractive, but that means we would need $75,000 at the start of the process to pay the contractors, which we didn‘t want to advance. Nor could we take out a loan, because the interest wasn‘t being covered by the landlord. Besides which, a landlord without the financial wherewithal to finance any structural upgrades made me concerned about a business partnership that would span at least a decade.

This is where the lawyer is invaluable. You “know” the lease, you‘ve been informed by your conversations with the landlord and your offer letter. You are excited about the space and the opportunity; you and the landlord are best friends right now. It may seem perfectly reasonable to assume your good relationship will extend through your build-out, the term of your lease and nearly unto death. Why wouldn‘t both parties operate in good faith?

Detailing all these items in a contract seems like an abridgment of faith and potentially damaging to the relationship. If everything must be detailed in writing now, where’s the flexibility for dealing with the future? Even reading the lease can be depressing. For every paragraph detailing the use of the space, there will be three that detail what happens when you or your landlord default. Leases are obsessive-compulsive instruments that detail remedies when things go wrong; like prenuptials, they are only briefly concerned with what happens when your theatre is doing well.

And let’s not forget what we‘re actually trying to read here. In our lease, the first five pages cover the terms of the offer letter. The remaining 40 are concerned with penalties and remedies for various infractions, accidents and misconduct. Are these fair? To be honest, I can barely understand the broader issues involved, let alone the specific resolutions in the lease. Your lawyer is the only one you should trust to decipher this. Even if you pride yourself on your ability to absorb complex texts—perhaps you enjoy reading some Bakhtin before bed every night—be advised that there are a host of phrases in legalese that have specific contractual meaning that you cannot decipher from context. Do you know the difference between “negligence” and “gross negligence”? How much effort is a “reasonable” effort?

Go, get thee to a lawyer. Even if your landlord balks, you need legal review on your side.

You and your lawyer should review each draft and talk through each point until you understand it. This is no time to be chintzy. Hopefully, your organization has some pro bono legal resource, but if not, spend the money. Spending several thousand dollars now could save you 10 later on. Here are some questions we ran across in our most recent round of lease revisions:

Continuous operation. This is a common clause in retail leases and had survived into ours. What does continuous operation mean for a theatre? Continuous production? Regular business hours? What about vacationing in August?

“Nuisance” noise. How loud is a “nuisance?” What about exiting audience members whom we do not control? This would be especially important in a shared-use building, with tenants who have adjoining walls.

Fire/insurance remedies. If the building burns down, whose insurance pays first? Who oversees the reconstruction? What happens to the theatre during the reconstruction period? What happens to the rent? Do you need business continuity insurance?

These are three items on a list of 12 we reviewed before bringing them back to the landlord. All told, the lease has been through eight revisions, each one containing 10-30 talking points. I recommend being involved in every one of these calls, even the ones that might just be lawyer to lawyer.

Remember, even if you are hiring someone to represent your interests, you aren‘t cutting yourself out of the process. You are the one who knows what a theatre needs. The lawyer is your agent to make sure your needs are reflected in the contract. He/she may know everything there is to know about liability, but not about normal theatre operations. Often you or your landlord can use your knowledge to come up with a compromise that might not occur to your lawyers.

We had some serious questions as to when the lease was considered to have begun and then when the rent abatement period would end. As a theatre, we need a PPA to begin operation, which is available only once construction has been completed. The landlord required some sort of terminal date to be able to repurpose the space if we were unable to get the city license. To resolve the issue, I used my knowledge of the PPA process to suggest a reasonable compromise. Admittedly, that was my only contribution to the conversation in the previous 15 minutes, but it was an important one.

My recommendation for handling this lease review process is to take your time. Don‘t make any hasty decisions and don‘t agree to anything in the lease that you are too uneasy about. This process can be quite lengthy, depending on the landlord’s and your schedules. In general, we would keep the lease 10-14 days for review and comment. At one point, our landlord held onto it for four months.

What do you do during this process? Once the basic terms are agreed to, you and your architect should start working on your drawings in earnest. You will need a clear and definite roadmap for construction to detail the improvements in your lease. In many cases, the landlord is in charge of these modifications before your lease commencement date. A preliminary plan and detailed description of those improvements will need to be attached as an appendix. If you are doing additional work in the space after delivery, you will need landlord approval for that development as well.

You can also contact the city to conduct a “pre-inspection” of the site if you are concerned about access issues. Our site was recessed off the street, with all our fire exits emerging into a courtyard or alleyways. We contacted Stan Kaderbek, who is in charge of the city inspections department (312/744-9080). Two inspectors showed up the following week for a walk-through of the proposed site. Armed with our plans, they verified that we could operate a business that far from the street and that there were no legal or safety issues inherent in the location. The city does ask theatres who take advantage of the pre-inspection program not to abuse the privilege (not extended to any other businesses in town), so make sure you have made a reasonable effort to answer any permit questions you can before you call. There is little the inspectors can tell you based on the basic building, but if you have a strange setup and your architect cannot decipher some esoteric part of the building code, then use them now. We will no doubt use them again toward the end of construction.

You do not need the detailed mechanical and electrical plans for the lease or the inspection. A basic ground plan will be sufficient. The detailed plans (required by the city to file for permit) are time-consuming and expensive to produce. I can‘t recommend spending that money until the lease is finalized. There are a few financial things you can pull together in this time, however.

You will need to organize yourself for the security deposit. This could be up to three months in rent. If the landlord is doing extensive renovations to the building before you take possession, try to get this amount put in escrow until you take possession of the space (remember, think defensively). This amount is typically due at signing.

You will probably need to increase or adjust your insurance coverage when you take possession of the space. From that point on, you are responsible for all accidents and damage. If you are doing all the renovation, make sure you have coverage starting the day of commencement.

So, where is Theater Wit settling? At the time I am writing this, we have still not signed the lease! The first draft of the lease was presented to us in October of 2004. Our last revision conference call (this morning) only altered two sentences, so I have every hope that we will have a signed and sealed agreement in the next seven days. I can tell you however that we have currently allocated a security deposit of $20,000 for delivery upon signing, so our current expenditures are $43,500.

As always, questions and suggestions can be posted at our website, www.theaterwit.org.

Jeremy Wechsler is the artistic director of Theater Wit, “Plays of Humor and Intelligence.” 

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