Nov 06, 2017

7 Critical Lease Terms that Corporate Tenants Should Know

By Don Catalano


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Renting commercial space is a huge responsibility, as the success or failure of a business rides on the particular terms of the lease a corporate tenant agrees to. Before approaching a property-owner, it’s best that you first understand how commercial leases work and before signing your lease agreement, be sure that you agree with all terms of the lease. Here are the most critical lease terms that every corporate tenant should pay attention to:


The Length of the Lease

Also referred to as the ‘lease term’, is the duration of time you’ll rent the space. Agreeing to this lease term means that you will be obligated to pay rent for the entire length of the lease regardless of whether you will use the space or not. It is, therefore, important that you be sure that you will need and want the space during the specified lease term.


Rentable Square Footage

Find out how your landlord measures the rentable square footage, i.e. does it also include space that you do not occupy. Common areas such as elevators, rest rooms and hallways are normally included in the rentable square footage. This shared space will obviously add up to your rent, thus important for you to know how much you will be expected to pay.


Type of Lease

There are basically two types of commercial real estate leases, i.e. gross lease and net lease. The gross lease means that you’ll pay one lump sum for rent, from which your landlord will pay expenses such as property taxes, maintenance costs and insurance. The net lease means that you will pay a smaller base rent, but you’ll be charged for the expenses separately.


Obligation for Maintenance and Repair

Find out whether it’s you or the property-owner who will be obligated to maintain the premises, most especially the common areas. If there is a lease term that stipulates that you will be obligated to pay for common area maintenance, it means that you’ll be obligated to pay space that isn’t exclusive to you. Check this out beforehand and negotiate a fair deal.


Improvements and Modifications

It’s also important that you know whether there will be enhancements, modifications, or fixtures that may added to the space. If you will be expected to pay for them, seek to know whether you’ll own the fixtures after the lease term ends.


Renewable Options

Seek to know whether you’ll have an option to renew your lease and what the terms are. Find out whether the landlord will reset the rent according to the fair market value, or whether there’s room to negotiate a fixed increase. It’s also important that you know about the allowable increases/escalations to your rent and how they will be computed.


Lease Termination

Be sure to find out how the commercial lease may be terminated, the penalties involved, and whether notices will be required for termination. It’s also good to know whether any arising disputes will be arbitrated, mediated or taken to court.


Here are a few other articles to check out:

Commercial Office Leasing 101

Finding the Right Office Lease Term

10 Must-Know Commercial Real Estate Terms


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Don Catalano

Don Catalano