If you are starting a new business or looking to move to a new location, chances are you will be signing a commercial lease. Before you negotiate and sign a commercial lease, it is a good idea to retain the services of a professional familiar with the commercial leasing process and the terms.
Or, if you are looking to get into the commercial landlord business, or rent-to-own business, you must contract with your tenants in writing, using terms that clearly spell out duties, if your lease is to be enforceable.
There are a number of key provisions of a commercial lease that are important for business owners and commercial landlords to review and understand before signing on the dotted line. Commercial leases are more complex and have far fewer statutory protections and requirements than a residential lease. While this allows for more freedom of contract, tenants and landlords alike can get into big trouble if they do not understand important terms.
Basic Lease Information
This section usually includes the monthly rent amount, address of the property, term of the lease, square footage of the property, and option period to renew. It also tells you who is the tenant (hint: it should be the corporation, not the owner). Business owners are also often separately required to personally guarantee the leases, putting their own assets at risk in a down business cycle, but giving the landlord a little extra protection from breaches.
Some landlords will permit the tenant to sublease space to additional tenants, although they usual require written approval first. Also, in most leases and subleases, the primary tenant lease holder is still responsible for the full rent, regardless of what happens with the subtenant. Both the subtenant and the primary tenant are usually responsible directly to the landlord for other lease terms, such as maintenance requirements and to not engage in dangerous or nuisance activities.
Alterations or Improvements
Most commercial spaces are not designed in a tenant’s optimal layout upon signing the lease. Therefore, it is important to negotiate whether the tenant make alterations or improvements to the commercial space as long as they are approved by the landlord. It is also essential to clearly state whether these alterations or improvements will remain property of the landlord upon termination of the lease, or if they will be owned and removed by the tenant. You should also negotiate who will pay for any improvements, such as when the building needs improvements to keep up with safety codes or ADA requirements.
Failure to Pay and Remedies
This section of the commercial lease details specific actions that make the lease go into default, including failure to pay rent, abandonment of the property, failure to pay all required taxes, filing a petition for bankruptcy, etc. This section will state which county and state court systems have jurisdiction over legal actions, should any arise. This is especially important if the landlord is located in a different county or state. This section may also permit the landlord to obtain a judgment of possession to take back the property without any prior notice to the tenant, should the lease go into default, or liquidated damages upon certain breaches.
Attornment and Subordination
In today’s economic climate, this section of the commercial lease is especially important to read, as it dictates what would happen should the landlord sell or lose the property to foreclosure. In most leases, if an owner loses the property, the new owner will take over the already intact lease and its agreed upon components. But sometimes the lease will automatically terminate upon a transfer of ownership or upon foreclosure, leaving the tenant facing an eviction and giving the tenant rights to bring a lawsuit against the original landlord for damages.
Additional Charges for Maintenance and Insurance
Most commercial leases will require the tenant to pay for a few additional items on top of the monthly rent. These items typically include securing commercial liability/property insurance on the building, maintaining the cleanliness of the inside and outside of the property, and paying a portion of the real estate taxes on the property. Sometimes these are added in as monthly charges or yearly payments.
Bellatrix PC attorneys examine existing and proposed commercial leases and can:
- Draft and review commercial lease agreements
- Negotiate new or re-negotiate existing commercial lease agreements
- Resolve landlord/tenant disputes
- Provide advisory opinions on the meaning of lease provisions
- Handle lease-to-own contract proposals
For review of any commercial leasing transaction, be sure to reach out to one of our real estate attorneys today.