Lease Agreements

The Big Lease, Inc. (“TBL”) is a technology platform providing AI-powered tools for the preparation, negotiation, and documentation of lease agreements — including commercial real estate, industrial space, land (agricultural, energy, recreational), and equipment leases structured as either operating or capital arrangements.

TBL is not a real estate broker, leasing agent, property manager, licensed tax professional, attorney, escrow agent, or fiduciary to any party. TBL does not represent the lessor or the lessee. Both parties independently engage TBL's software tools to prepare for and conduct their own negotiation, and TBL's AI-Advisor delivers analysis to each party privately (the “Chinese Wall”) without sharing one party's strategy, BATNA, or private reasoning with the other.

All fifty U.S. states require individuals who facilitate real estate transactions on behalf of third parties — including the negotiation of leases for compensation — to hold an active real estate broker or salesperson license issued by the applicable state commission. TBL does not broker real estate transactions in any jurisdiction.

TBL maintains relationships with licensed real estate brokers in select jurisdictions. Where a transaction requires licensed services beyond TBL's technology role, users are encouraged to engage a TBL-referred partner or a broker of their own choosing. TBL does not guarantee the performance or outcome of any referred broker. Practitioner experience indicates Texas's licensing framework is among the most accommodating to non-traditional models, while California, New York, and Florida apply some of the most restrictive interpretations; current rules should be verified with each state commission.

In an operating lease, the lessee pays for the right to use an asset over a defined term while the lessor retains legal title. At end-of-term, return of the asset to the lessor is the default outcome unless a renewal or purchase option is separately exercised.

Under ASC 842, the lessee recognizes both a right-of-use (ROU) asset and a corresponding lease liability on the balance sheet for operating leases with a term greater than twelve months. Income-statement treatment, however, differs from a finance lease: rent is generally recognized on a straight-line basis as a single operating expense over the lease term, and is typically deductible for federal tax purposes when paid or accrued under the user's applicable accounting method.

TBL's operating-lease template includes standard clauses covering routine maintenance allocation, return condition, insurance requirements, and assignment and subletting restrictions. Specific terms must be reviewed and adapted by the parties with input from counsel and a CPA where the agreement deviates from the template baseline.

A capital lease (referred to as a finance lease under ASC 842) is an ownership-like arrangement. Under historical U.S. GAAP guidance and analogous tax-law tests, a lease is generally treated as a capital/finance lease when any one of the following is present:

• The agreement contains a bargain purchase option.
• The lease term covers 75% or more of the asset's estimated useful life.
• The present value of the lease payments equals or exceeds 90% of the asset's fair market value.
• Title to the asset transfers to the lessee at end-of-term.

Balance-sheet effect: the asset is capitalized and a corresponding liability is recognized for the full obligation. Income-statement effect: depreciation expense and interest expense are recognized separately, with interest typically front-loaded over the lease term. For federal tax purposes, the asset is generally depreciated under the Modified Accelerated Cost Recovery System (MACRS) consistent with the asset class.

A capital/finance lease typically requires a promissory note, a security agreement, and a UCC-1 financing statement to perfect the lessor's secured interest against third-party claims. TBL's document generator produces these instruments as a coordinated set; users remain responsible for execution and filing.

TBL's document generator selects a template based on user selection; TBL does not opine on which classification is correct for any specific transaction. Classification consequences are material — they affect balance sheet, income statement, tax deductions, and the lessor's ability to perfect a security interest. Users are responsible for engaging a licensed CPA to determine classification under ASC 842 and applicable federal and state tax law.

TBL's clause library currently includes state-specific provisions for the following jurisdictions:

• California — Civil Code §1950.5 (residential security deposit limits) and §1950.7 (commercial security deposits).
• New York — Real Property Law §235-b (warranty of habitability); New York City Local Law 1 of 2004 (lead-based paint disclosure).
• Texas — Property Code Chapter 92 (residential tenancies) and Chapter 93 (commercial tenancies).

State-specific clause sets currently in development include Florida (hurricane and named- storm provisions), Massachusetts (security deposit interest accrual), Illinois (eviction notice requirements), and Washington (state-mandated disclosures). For all other states, TBL applies jurisdiction-neutral clauses with conservative defaults; for any unlisted state, counsel review of the generated agreement is required prior to execution.

Federal and state law impose mandatory disclosures in many lease transactions. TBL's agreement generator surfaces required disclosures based on the property type and jurisdiction selected by the user. Common disclosure categories include:

• Lead-based paint — federal Title X (residential properties built before 1978) plus state-level supplements.
• Asbestos — required in several states for older buildings undergoing leasing or renovation.
• Flood zone — required where the property is located in a FEMA Special Flood Hazard Area or analogous state-level designated zone.
• Radon — required in select states for residential and certain commercial occupancies.
• Mold — required in several states with prior-occurrence or remediation history.
• Megan's Law — sex-offender-registry notice required in select states.
• HOA / association governance — required where the property sits within a homeowners' or commercial-condo association.
• Foreign ownership — required in a growing number of states restricting or reporting non-U.S. ownership of agricultural or strategic land.

Failure to deliver a required disclosure can void the lease, expose the lessor to statutory penalties, or trigger rescission rights for the lessee. Users are responsible for confirming disclosure obligations with counsel licensed in the governing jurisdiction.

State law commonly limits the size of security deposits and the manner in which they must be held. California (Civil Code §1950.5) limits residential deposits to two months' rent for unfurnished units. New York generally limits residential deposits to one month's rent. Many states require deposits to accrue interest payable to the lessee and to be held in a segregated trust account separate from the lessor's operating funds.

TBL does not hold security deposits. Where a transaction requires a third-party deposit holder, TBL integrates with licensed escrow partners (including Escrow.com, Prime Trust, or title-insurance-company escrow services) to meet state-level trust-account requirements. Commingling of customer funds with operating funds is prohibited by law in every U.S. jurisdiction.

For capital or finance leases of equipment, the Uniform Commercial Code generally requires a UCC-1 financing statement to perfect the secured party's interest against third-party claims. UCC-1 filings lapse after five years and require a continuation statement to remain effective. TBL's platform provides the underlying agreement and a UCC-1 draft tracker; TBL does not itself submit UCC-1 filings to state offices or guarantee their acceptance.

Users are responsible for retaining counsel or a licensed filing service (such as CSC, Wolters Kluwer, or a state-specific provider) to execute, file, and maintain UCC-1 filings, including continuation statements every five years.

TBL's clause library offers standard treatments for rent escalation (fixed step-up, CPI-linked, or fair-market reset), renewal options, holdover rent, and early-termination penalties. Enforceability of escalation caps, renewal-option terms, and termination penalties varies by state and by property type — residential leases in particular face stricter consumer-protection limits than commercial leases.

Users are responsible for verifying jurisdiction-specific limits before agreement execution and for seeking counsel where escalation or termination terms approach the outer bounds of enforceability in the governing state.

Most U.S. states automatically apply baseline residential-tenant protections to residential leases, including an implied warranty of habitability, the right to quiet enjoyment, prohibitions on retaliatory eviction, and procedural requirements for notice and termination. These protections frequently cannot be waived by contract.

Equipment leases on TBL include standard treatment of the following commercial allocations:

• As-is warranty disclaimer — lessor disclaims warranties of merchantability and fitness; lessee accepts the equipment in its delivered condition.
• Risk of loss — typically allocated to the lessee from the date of delivery, including casualty and theft.
• Maintenance responsibility — operating leases generally place routine maintenance on the lessor; capital/finance leases generally place all maintenance on the lessee.
• Insurance requirements — minimum coverage for property damage and liability, with the lessor named as additional insured and loss payee.
• Buyout option pricing — fair market value, fixed-price, or $1 buyout (the latter typically indicating capital-lease classification).
• Return condition standards — defined wear-and-tear thresholds, return location, and acceptance procedure.

These are baseline allocations only. Users with specialized equipment (medical, industrial, regulated) should engage counsel familiar with the asset class.

Land leases — agricultural, energy (solar, wind, oil and gas), recreational, and development — fail far more often on rights than on price. TBL's land-lease clauses address:

• Use restrictions — permitted activities, exclusions, and zoning compliance.
• Access rights — ingress, egress, easement scope, and shared-road obligations.
• Water, mineral, and easement rights — split-estate questions; subsurface rights; existing third-party easements. Critical in agricultural and energy contexts.
• Improvement rights — what the lessee may build, ownership of improvements at end-of-term.
• Revenue share — common in energy and agricultural leases (royalty, crop share, production share).
• Purchase option — strike, mechanism, and notice period.

TBL's AI-Advisor provides analysis, framing suggestions, scenario projections, fraud pattern detection, and cognitive-bias alerts based on the information each party provides privately. AI output may contain errors, omissions, or hallucinations. AI output does not constitute legal, tax, financial, accounting, valuation, or professional advice of any kind.

Users are solely responsible for the lease decisions they make. Users should independently verify AI output before relying on it, particularly where the analysis informs a material financial commitment.

The default dispute-resolution provision in TBL-generated lease agreements is binding arbitration administered by the American Arbitration Association (AAA) under its Commercial Arbitration Rules, with mediation as a required first step. The provision is severable: if a court of competent jurisdiction finds any portion unenforceable, the remainder continues in force. Users may substitute a different forum, venue, or governing law by modifying the dispute-resolution clause before execution. The generated agreement's dispute provisions govern disputes between lessor and lessee, not disputes between any user and TBL — which are governed separately by TBL's Terms of Service.

TBL's Terms of Service govern the user's relationship with TBL as a software platform. TBL's liability is limited as set forth in the Terms. TBL disclaims any representation that a lease will close, that a counterpart will perform, that AI-generated output will be accurate, or that any document produced by TBL is suitable for any specific transaction or jurisdiction without professional review.

TBL's agreement generator and AI-Advisor are designed for straightforward lease transactions. Users should retain counsel — and TBL's platform will flag these scenarios where detectable — when any of the following applies:

• Lease term exceeds ten years.
• Total lease value exceeds $500,000.
• Sale-leaseback structure.
• NNN (triple-net) commercial structure.
• Lease spans multiple U.S. states or crosses national borders.
• Property has known or suspected environmental concerns.
• Agricultural or energy land with mineral, water, or easement-rights complexity.
• Residential lease in any state.
• Property is located in an unlisted state (currently outside CA, NY, TX coverage).
• Regulated asset class (healthcare facility, cannabis, liquor-licensed premises).
• Capital or finance lease over $250,000 requiring UCC-1 perfection.

For questions about this disclosure, contact legal@thebiglease.ai. For questions about a specific lease, contact your attorney, CPA, or licensed professional — TBL cannot and does not provide transaction-specific legal advice.