Apr 10, 2019

6 Commercial Lease Clauses to Avoid

By Don Catalano


6 Commercial Lease Clauses to Avoid
When you enter into a commercial lease negotiation, you do so in good faith and want to believe that the landlord is presenting you with a fair agreement. Unfortunately, there is always a chance that the landlord has included clauses that weigh heavily in their favor and could cause you trouble down the line. Here are six clauses to look out for and have removed before you sign:


1. Personal Liability Clauses 

If you sign a commercial lease agreement that makes you personally liable for your company's rent and common area maintenance (CAM) fees, the landlord can come after you in the event of a default. Even if you feel very confident in the future of your company, signing a lease with a personal liability clause is a big mistake.


2. Convenience Clauses 

A lease with a convenience clause makes it possible for the landlord to terminate your lease for any reason at any time. The landlord is not even required to provide you with a reason for the termination. This means that if a prospective tenant offers a ridiculous sum for your space or the landlord decides to vacate the building to sell, you could suddenly find yourself having to quickly relocate.


3. Recapture Clauses 

With a recapture clause, a landlord has a right to terminate your lease if you request a sublet or assignment allowed to you under the lease. If it's not possible to get this language deleted, insist that you be given the opportunity to withdraw the request before the landlord issues their right to terminate and recapture the office space.


4. Vague CAM Fees

Common area maintenance fees are a normal part of any lease; however, a reputable landlord will spell out very clearly what fees your company is responsible for and how the fees are calculated. If the language in the lease leaves any room for doubt or interpretation, ask to have it clarified. It's not enough for the landlord to simply explain to you what it means; the document must be updated to put all fees in black and white.


5. Forfeiture of Legal Rights 

Some leases will ask you to give up certain legal rights, such as the right to sue the landlord for failure of keeping up their end of the lease agreement. In most cases, judges will rule that these types of clauses are not enforceable; however, it is still best to fight to have them removed before you sign. There is no good reason for a reputable landlord to ask you to waive your rights.


6. Questionable Rent Escalations

Rent escalations are another standard in commercial lease agreements, but once again, it should be very clear when the escalations go into effect and how much the rent will increase each time. If the landlord ties rent escalations to a variable index like the Consumer Price Index, proceed with caution, as these setups usually heavily favor the landlord. When possible, negotiate to have a cap put in place that limits the amount that your rent can increase if the index rises.


Here are some other articles you might enjoy:

7 Tips When Touring Potential Office Space

Importance of Having a Flexible Commercial Office Lease

10 Commercial Real Estate Concerns You Should Know


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Don Catalano

Don Catalano