When you discover the perfect commercial location, the need to act fast can result in hasty decisions with lasting repercussions. If you’re ready to sign a commercial real estate lease for a retail space, office building or other commercial property, take a few minutes to consider the items on this list before you put pen to paper. After you sign the commercial lease, it’s too late to make changes to the terms of the agreement.
- Did you read the entire lease agreement? Many landlords will use standard lease agreements with general terms for all their leases. If you have negotiated any special terms or there are any special considerations that have been discussed, make sure they are addressed specifically in the document. If they are, make sure that the specifics that were added aren’t contradicted by any of the standard language included in the lease. Never assume the seller got everything right: check the dates, check the rent and rent escalation, and any special terms you have negotiated. Also check that you and the landlord are clear (and that clarity is reflected in the lease agreement) on each party’s obligations regarding the property during the term of the lease. Check the lease for options for terminating the agreement. Make sure they are included and that you are aware of what the process/consequences are if the situation arises.
- Does the lease represent the best possible deal? Many terms of the lease are still negotiable. Read through the lease agreement and make a list of any terms or provisions that are don’t like and send the list to the landlord. Many will be willing to make significant changes at this stage.
- Is your business structure in place? Before you sign a commercial lease, make sure your business structure is in place so you can take advantage of the protections afforded by the corporate structure.
- Do you understand the terminology in the lease? For example, most leases will use the term CAM. This stands for Common Area Maintenance. When leasing a commercial property, you should be allocated a percentage of the CAM as your responsibility based on the percentage of the building you will be leasing. Make sure the percentage is based on the size of the building and doesn’t vary depending on how much of the building is currently rented. Make sure that there are no fees included in the CAM section that would cover the landlord’s marketing efforts of legal fees in connection with other leases on the property. Administration fees included should be 3% or less and you should not be expected to pay for benefits for the landlord’s employees or build out costs for other lease units on the property.
- Do you understand your responsibility for capital expenditures? In a commercial lease, capital expenditures generally refer to major structural costs like roof replacement or repair, foundation issues, HVAC, etc. It is best to attempt to avoid signing a lease that shifts the responsibility for these types of repairs to the tenant. If the landlord is requiring you, as the tenant, to cover these capital expenditures, consider negotiating a compromise. You might suggest a maximum amount for tenant responsibility per year or decrease tenant responsibility in exchange for including a regular maintenance responsibility.
- Is the lease assignable? Are you allowed to have a sublessee? Does the landlord retain the right to cancel your agreement if you ask for an assignment? The location of a business can be a big part of its overall value. This can be a major issue if you decide to sell your business in the future.
- Is there an arbitration clause? These clauses require that parties involved settle any disputes with arbitration instead of litigation. The lease contract may specify that the arbitration clause is mandatory. If so, make sure it also specifies that you will have the right to participate in the selection of an arbitrator and other decisions related to settling any potential dispute without litigation.
Commercial lease agreements can seem extremely one-sided and tedious, but many of the provisions are there for good reason. If you need help negotiating a commercial lease or reviewing your commercial lease agreement before signing, please get in touch with one of the experienced New York real estate attorneys at Aronow Law PC today.