May 11, 2020

6 Deal Breakers in Your Commercial Lease

By Don Catalano

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6 Deal Breakers in Your Commercial Lease
Negotiating a commercial lease can be a very frustrating process, especially if you do not know the potential deal-breakers to look out for. Landlords seek to make the best out of every deal and you should do so too, especially if you want to have a smooth business operation in the new office. Here are six deal commercial lease breakers to watch out for.


1. Ambiguous Fees

This is the number one deal-breaker. As a corporate tenant, you have to know every single form of payment that you will be making. It is advisable to spend a considerable amount of time studying the lease document in order to unroot any monetary clause that can affect your payment plan.

 

As a tenant, you should be looking for a fair base rate that is adjustable for new services. If your base-rate is not clear enough, you should be willing to walk away from the deal.

 

2. Prohibition of Assignment/ Subletting

As a corporate tenant, you want to have the right to sublet your office space without your landlord’s consent or any restrictions. If your lease agreement requires any form of delayed approval or hindrance to subleasing your space, you may want to renegotiate or walk away from the deal. Your sub-tenants should be able to carry out their own business activities without any disturbance as long as their operations are within your original lease agreement with the landlord.

 

3. Difficult Renewal Terms

You need to evaluate the renewal options that the landlord presents to you. If they are unfavorable, you may want to walk away from the deal. For instance, if there are clauses that mandate you to renew your lease after it ends or forces you to relinquish the right to renewal, you may want to jot that down as a deal breaker. Also, the renewal clause should contain the time of exercise and the cost of renewal must be known to all parties involved. In addition, if you occupy the whole building, you want to agree with the landlord on how the fair market value of commercial lease renewal will be calculated.

 

4. Consents and Approvals Process

If there is no clear path to how you obtain consents and approvals when taking certain decisions as regards the lease, that is a commercial lease deal breaker. For instance, if you are responsible for certain repairs, consents should not be unreasonably held or delayed, as it may affect your business operation. Also, you want a realistic time-frame when seeking approvals. If there are going to be objections, they have to be specific and genuine based on an agreed set of rules. This is very important if you want to minimize commercial office frustration when you eventually move in.

 

5. "Hand Shake" Deals

Commercial real estate deals are unlike residential leases. Everything must be put in writing. A reluctance to put all agreed clauses in writing is a sign that something is fishy. Hence, you must insist that all agreed clauses be put in writing and included in the lease document. This is why it is recommended that you work with a tenant rep who will help with the negotiation process. A written and signed agreement removes all the blurry lines from your lease and allows you to run your business without having to constantly check your back.

 

7. Excessively Long Terms

If the landlord is pushing a lengthy lease term, you have to be wary and put your guards up. Landlords generally benefit from a long lease term. However, it may not be the appropriate lease length for your business.

 

By paying attention to these commercial lease breakers, you will avoid many pitfalls and have a smooth tenant experience. If you have any doubts as regards as a clause, consult your tenant rep broker to help you understand the lease document.

 

Here are some other articles we know you'll enjoy:

Checklist When Leasing Office Space

6 Common Pitfalls to Avoid in Commercial Real Estate

How Technology is Revolutionizing Commercial Real Estate

 

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Topics: Commercial Lease

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Don Catalano

Don Catalano

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