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Top 5 Issues When Reviewing and Negotiating a Commercial Lease

by | Oct 6, 2023 | Contract, Lease, Real Estate

While businesses are still grappling with working from home policies for their employees, more and more companies are realizing the benefits of a physical location to meet the needs of their customers and employees.  In that regard, when an owner/tenant is reviewing and negotiating a commercial lease, they should consider the following issues:

1)  Rental Amount – This includes the actual amount, identifying what is owed both annually and monthly.  Also, what other amounts may be included and calculated, such as: utilities, property taxes, maintenance, internet, repairs.  This amount should also be identified in square feet, which will confirm the physical space being rented, in the event there is discrepancy.  Additionally, the lease should provide the amount owed if the tenant stays in the Premises after the lease term expires; or if the tenant is allowed credits towards the rent for performing certain work or paying the rent in a timely manner.

2)  Duration – This includes the actual dates when the Tenant will be entitled to use the Premises.  Preferably, this term should be identified with actual calendar dates.  However, the duration could also be defined by identifying certain milestones, like a date when construction work is completed or when an inspection is performed.  Additionally, the lease should state if there is an option to renew, when the party needs to provide notice of the option to renew and to whom.

3)  Condition of the Premises – The lease needs to state who, Landlord or Tenant, will be preparing the Premises for use.  This should include who is paying for the construction, what materials will be used, who will select the materials and when the work should be completed.  Most importantly, the lease needs to state who is responsible for paying for the improvements to the Premises.

4)  Allowable Use for the Premises – The lease should specifically state what activities are allowed and not allowed.  If the business needs to perform a specific function, then that activity needs to be identified.  For example, if manufacturing of certain products are required, then terms should provide for all the steps necessary to perform the manufacturing.  Another example is if the business activities effect other parts of the Premises, like the neighbors or adjacent floors, through vibrations, noise or odors, then the lease needs to confirm that this is allowed.

5)  Damages – In the event that the Landlord or Tenant does not comply with the lease, the terms need to identify what the party is entitled to and when.  Importantly, the lease should state what conditions would lead to the tenant being evicted or not liable for the rent to the landlord.  Also, what constitutes a default by the landlord or tenant and is there a right to cure the default.

Finally, if a personal guaranty is required, then the amount of the guaranty should be negotiated based upon the business’ financial statement.  Another option is to limit the damages to a certain amount, as opposed to, for all amounts that may be owed for the default.