The lease is extremely important document when considering a potential landlord or office space. All issues that arise throughout a tenancy will defer back to what is stated in the lease. The time to negotiate those outcomes is before you sign the lease…not after. It is important to find a real estate attorney who is familiar with commercial contracts, documents, and leases to review any paperwork that is delivered to you to sign from the landlord. Your broker is there to assist but, if they are any good, they will stay in their lane and advise you to hire a real estate attorney who is versed in legalese.
At the time of lease signing it may not seem all that important to understand fully every aspect of the lease. But doing so can save you a lot of heartache should a problem between yourself and your landlord occur. Below are examples of a few clauses you should expect to find in a commercial lease:
Make sure your lease encompasses the details of the property, rental payments, square footage, both parties information that are entering into the agreement, start date and end date of the term, any remodel work to be done, etc. It is your responsibility to make sure everything that could affect your time during your lease is accounted for and outlined. Your broker and real estate attorney will be able to assist you.
This is where the lease language usually gets very legalese. Normally language is written to limit the landlord’s liability should something “bad” occur on or in the property. Having a solid commercial general liability and property insurance policy in place for your business is recommended for your protection of your property and claims against your business. This is why it’s important to engage a real estate attorney to protect you.
Assignment and Subletting
Assignment is a transfer by lessee of lessee’s entire estate in the property and subletting is when you transfer just part of your leased space to another tenant while you remain on the property, on a temporary or permanent basis, or if you transfer the entire rental to another tenant for a period of time while you move out. This is an important topic to discuss with your landlord prior to signing a lease because this could affect your bottom line tremendously. Perhaps your business model changes and a few years into your lease you find that you don’t need all of the space and you would like to sublet a portion for the duration of your lease. Most landlords allow subletting but you need to get approval.
A very important aspect of the lease because this is mostly likely where disagreements between the tenant and landlord will occur. The landlord’s lease will usually include a “Maintenance and Repair” clause that concerns your duties to care for your own rented space (or for the entire building, if you are the sole tenant). Make sure you understand if CAM (Community Area Maintenance) charges are included in your lease rate or not. In addition to the CAM charges, know specifically who is responsible for things such as light bulb replacement or HVAC breakdowns.
Destruction of Premises
This section of the lease will outline a landlord’s responsibilities for rebuilding your office should it get destroyed or partially destroyed. Understanding if and when the lease terminates, if the landlord can’t rebuild within a certain period of time, and your rights so you can continue to conduct business.
Office Building and Center Rules
Make sure you know the building or center rules and that you and your employees can comply with these rules. Most landlords will hold the lease signor responsible for the behavior of his/her employees. You could be subject to eviction if you can’t abide by the landlord’s rules.
Event of Default
This section of the lease will describe the rights of the landlord if you as the customer do not comply with the terms and conditions stated in the lease. Make sure that you are okay with the terms stated in this section, for example, if you fail to make rental payments what is the amount of time you will have to remedy the missed payment before the lease can be terminated and whether there are any additional fees or penalties for a missed payment.
To be in holdover status means that your current lease has expired and you have yet to sign a renewal or move out of the space. When you first sign a lease and you have years before you need to either renew or look for another space you might think it would be ridiculous that you would end up in holdover status. Unfortunately, this happens quite frequently. Landlords charge anywhere from 125% to upwards of 200% of your monthly rent to stay in holdover status. Make sure you know what your costs will be if you do end up in this situation. Furthermore, you should plan what to do with your business at least 2 years before the expiration of your lease if you know you do not intend to stay in your current location.