Even if your job involves reading through contracts on a regular basis, a commercial lease can be a daunting document to peruse. The complex legal jargon and unfamiliar vernacular found in commercial leases can make it difficult to know just what you are reading, but you cannot afford to simply skim the document. While it is important that you carefully read every part of your lease, these clauses are especially important to review before you sign.
1. Construction, Renovation, Repair, and Remediation Obligations
Be wary of any terms that require you to pay for construction or remediation, especially if you are signing a lease for the first time. It is not uncommon for a tenant that has occupied a space for years to be asked to cover the cost of bringing their units up to code when laws like the Americans with Disabilities Act or environmental laws change; however, you should not be expected to cover these costs with just a 3 or 5-year lease unless changes to the property or neglect on your part are the reason the repairs are required.
2. Operating Hours and Signage
Landlords may require all of the companies in their buildings to keep to certain business hours, particularly in the retail sector. You may also face limitations on what type of signage you can use to promote your business. Make sure that these types of terms do not conflict with your daily operations or require costly, major changes to your marketing strategy.
3. Changes to Common Areas
If one of the biggest selling points of a building is a common area like a gym your employees have access to or a swanky lobby, look to see if the landlord reserves the right to make major changes to common areas without permission from tenants. The last thing you want is for that big perk to vanish within a few months of your move.
4. Building Rules and Covenants
Every lease will spell out rules that tenants must adhere to. Read them carefully to ensure that they will not conflict with the culture or daily operations of your company. For example, you do not want to move into a building with a no pets policy if your employees routinely bring their dogs to work.
5. Indemnity Obligations
Landlords use indemnity language to protect themselves from liability. While it is standard for indemnity clauses to appear in a lease, be sure that the indemnity is limited only to what happens within your space and that it does not protect the landlord from liability if he or she is negligent or one of the landlord's employees are grossly negligent.
6. Financial Reporting Obligations
Your landlord may request that you provide reports before signing the lease and on a regular basis afterward to show that your company is in good financial health. Make sure that you know what reports are required and when they must be submitted.
Before you put pen to paper, have a tenant representative or an attorney who is well versed in commercial real estate read over the lease. Also, be sure to ask for clarifications and never be afraid to request that a particular clause be rewritten to make the terms more concrete or to eliminate potential gray areas.
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