When signing a commercial lease agreement, there is a substantial amount of key information that can easily be overlooked. Nonetheless the lease is a binding contract that can control many of your operations in the building. It is imperative that tenants understand every section and subsection in their lease before signing, and through the duration of their contract. In comparison to residential property, commercial real estate leasing doesn't have as many legal protections. If tenant unaware of a vital aspect of the lease agreement upon signing, the company could be forced to deal the consequences for many years to come.
Use of Premises
If it is not initially made clear to the landlord, the tenant's intended use of a property may be restricted. Further, some leases will permit the use, but a municipal zoning restriction could prohibit the same actions. Whenever in doubt as a prospective tenant, just check with local offices to ensure the area is zoned for the intended use. The leasee can become trapped in a lease for some time without being able to use the property efficiently.
As a tenant you may also change your intended use of the property down the road, but be trapped in an agreement that restricts use. Always keep in mind any and all restrictions of use when making these decisions.
Maintenance
Generally, in a commercial real estate lease, the owner of the property is responsible for regular maintenance and the tenant is responsible for everything else. But other leases require the leasee to make all repairs to the property. Unless the building is recently refurbished, this can, and in all likelihood, will cost you.
Break Clause
It is important to be aware of the consequences of ending the lease early. The break clause is a protection for the leasee in case the business isn't as profitable as planned, the location isn't as optimal as once thought, or there is another reason for the lease to end. Obviously you want to avoid needing to break your lease for several reasons: penalties, moving related costs, etc., but just in case, have your tenant rep negotiate these terms into your lease as a security.
Subletting
As a tenant, with years remaining on your lease, you may decide that your current building may be insufficient for one reason or another. You may decide to vacate the premisses, but you will still have the costs associated with building. One option to offset these costs, is subletting. Check your current lease to make sure that your are legally allowed this option. A provision to this clause often includes what to do with what is essentially the profits the tenant receives from subletting to the subtenant. Landlords often require receipt of these extra funds as a way to cover other non-rent expenses owed by the tenant.
Expenses
Rent is an obvious cost, but some leasees neglect to review the costs for other aspects of the operation, such as utilities, cable and internet, CAM, etc. Many commercial real estate leases will include some of these costs, so it is important to review them before entering the commercial lease agreement. Moreover, there is often rent escalation on a yearly basis. This is typically 2-3% per year. Check to make sure what you owe next year matches up with your budget. Budgeting based solely on your corporate real estate expenses from last year may not be enough.
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