Jun 03, 2020

7 Commercial Lease Terms You Need to Have

By Don Catalano

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7 Commercial Lease Terms You Need to Have
Commercial leases are dense, complicated documents that can be difficult for those without a legal background to get through. Still, it's vital that you take the time to thoroughly read your lease and have it reviewed by an experienced attorney. The first draft of a commercial lease typically favors the landlord, but the following clauses can provide protection for your company.


1. Leasehold Improvement Clause

This clause establishes the tenant improvement allowance, a per-square-foot dollar amount  the landlord makes available for tenants to use to finish or renovate an office space. Before signing the lease, do a thorough analysis of the improvements that you require, so that you can determine if your company will have out-of-pocket costs.

 

2. Subleasing and Assignment

The subleasing and assignment clause is especially important for tenants with long-term leases. By exercising the rights afforded to you in this clause, you can lease all or a portion of your unused space to a sub-tenant or turn the lease over to a new tenant and walk away completely.

 

3. Renewal Clause

A renewal clause gives you the guaranteed right to renew your lease at the end of the term. Ultimately, you may decide not to exercise that right and instead negotiate new terms with your landlord; however, this clause provides a safety net in case those negotiations fail.

 

4. Early Termination Clause

An early termination clause increases the flexibility of a commercial lease by giving you the option to give up your space before the end of the term in exchange for a fee. As with the sublease and assignment clause, it is most important with a long-term lease.

 

5. Releases, Indemnities and Insurance

All commercial leases will include a clause that outlines who is responsible for third-party claims made against the landlord. While it is common for tenants to assume liability when these claims are the result of their own actions or the actions of their teams, you should not be expected to take on 100 percent of all liability.

 

6. Notice and Opportunity to Cure

Should you fall behind on rent, this clause ensures that the landlord must notify you of a default and wait a certain number of days before beginning the eviction process. Make sure the time frame is reasonable before you sign.

 

7. Compliance With Laws

You should expect your release to mandate that you and your employees will follow all established regulations and laws while occupying a space in the building; however, never sign a lease that makes compliance only your responsibility. Often, modifications to buildings that must be made to adhere to building codes, Americans with Disabilities Act (ADA) and environmental protection laws involve costly capital improvements that should not come out of tenants' pockets.

 

Not all commercial leases will include the above listed clauses, so you should be prepared to negotiate for their addition. Having a tenant representative broker by your side can help to ensure successful negotiations and allow you to feel confident that you're leaving the table with a fair deal that protects your interests.

 

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: Lease Terms

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Don Catalano

Don Catalano

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