Are you a business owner in the midst of negotiating a new commercial lease? There are several lease provisions that are frequently highly negotiated and can have a significant impact on your business. Here are ten specific discussions you should have with a commercial real estate attorney to ensure you are getting the best possible lease agreement:
Rent escalation clauses: When it comes to commercial lease agreements, rent escalation clauses are provisions that can have a significant impact on a business’ finances. Rent escalation clauses are provisions that allow the landlord to increase the rent over the lease term. A commercial real estate attorney can help you negotiate a “cap” on rent increases, so you won’t face unexpected rent hikes that could affect your business’s profitability. In addition, it is important to note that the language used in the lease agreement is critical when it comes to calculating these increases. In some cases, landlords may hastily address the rent escalation clause without carefully considering the language used to describe how the increases should be calculated. This can lead to non-sensical or incomplete rent escalation computations, which can cause confusion and disputes between the parties involved in the future.
Tenant improvement allowances: Tenant improvement allowances are provisions that specify the amount of money the landlord will contribute towards any improvements you make to the space. Sometimes, however, the provisions are overly restrictive in favor of the landlord. A commercial real estate attorney can skillfully edit the provisions related to tenant improvement allowances to ensure that you get the maximum benefits.
Renewal options: Renewal options are provisions that allow you to renew the lease at the end of the term. A commercial real estate attorney can help you negotiate favorable renewal options, so you won’t have to worry about losing your space at the end of the lease term.
Use clauses: Use clauses are provisions that specify how you can use the space. A commercial real estate attorney can help you negotiate a broad use clause, which will give you more flexibility in how you use the space and could benefit your business in the long term.
Assignment and subletting provisions: Assignment and subletting provisions specify whether you can assign or sublet the space to another party. A commercial real estate attorney can help you negotiate more flexible assignment and subletting provisions, which could allow you to sublet the space to another business or assign the lease to a successor.
Security deposits: Security deposits are funds paid by the tenant to the landlord to cover any damages or unpaid rent at the end of the lease term. A commercial real estate attorney can help you negotiate a lower security deposit, which will free up cash flow for your business.
Insurance requirements: Insurance requirements specify the types of insurance you must carry as a tenant. A commercial real estate attorney can help you negotiate reasonable insurance requirements, so you’re not overpaying for insurance that you don’t need.
Termination clauses: Termination clauses specify the circumstances under which either party can terminate the lease early. A commercial real estate attorney can help you negotiate favorable termination clauses, which could give you more flexibility if your business needs change.
Guarantees: Guarantees are personal guarantees of the lease signed by a business owner or other individual. A commercial real estate attorney can help you negotiate limited guarantees, which will limit your personal liability if your business is unable to fulfill the lease obligations.
CAM Exclusions: Although the lease provisions discussed above are important, here is one area we’d like to delve deeper into: common area maintenance (CAM) exclusions. CAM exclusions are provisions that specify what expenses the landlord can and cannot charge to the tenant for common area maintenance expenses. These expenses can include property taxes, repairs and maintenance, cleaning, and landscaping.
It’s important to review CAM exclusions carefully because some landlords try to pass on all expenses associated with the property to the tenant, which can result in significantly higher costs. A commercial real estate attorney can help you negotiate favorable CAM exclusions to ensure that you are not being charged for expenses that are not your responsibility.
Common area maintenance (CAM) fees are the costs associated with maintaining and operating the shared areas of a commercial property, such as parking lots, hallways, elevators, and landscaping. CAM fees are typically charged to tenants as a pro-rata share of the total cost, based on the square footage of the rented space. However, there are some costs that tenants should be excluded from paying.
A commercial real estate attorney can help you negotiate CAM exclusions to ensure that you’re not overpaying for common area maintenance. For example, you may be able to exclude costs related to the landlord’s capital expenditures, such as building improvements or repairs, from CAM charges. Another example of a potential CAM exclusion is the cost of advertising or promoting the property, as this expense is typically considered a landlord’s responsibility. For example, let’s say that your lease states that you are responsible for all expenses associated with the property, including repairs and maintenance. If the landlord decides to replace the entire roof of the building, you could be on the hook for a significant expense, even if the damage was not caused by your business. However, if you negotiate a CAM exclusion that specifies that you are not responsible for any expenses related to capital improvements or repairs, you could potentially save thousands of dollars.
In conclusion, while negotiating a commercial lease can be complex, working with a commercial real estate attorney can help you negotiate favorable lease terms that will benefit your business in the long term. Make sure to carefully review CAM exclusions to avoid unexpected expenses that could affect your business’s profitability. Don’t hesitate to seek expert guidance to ensure you are getting the best possible lease agreement.