Consider these Factors Before Signing a Commercial Real Estate Lease
For entrepreneurs or experienced business owners seeking to rent a commercial space such as an office, industrial property or a retail store, it is essential to understand the negotiations that are necessary before signing a lease agreement.
A lease agreement between a landlord and a tenant, for the purpose of doing business, is more complex than a residential rental agreement. It is in the best interest of a potential tenant or a commercial property owner to have the lease agreement reviewed by an experienced commercial real estate attorney, to determine if the terms of the contract will be suitable for the needs of the business.
Some of the terms that are required in a binding commercial lease are the initial rent and future rent increases, the duration of the agreement, the security deposit, improvements to the property and if they are completed by the tenant or the landlord. Other terms include the ability for the tenant to sublet space, the placement of signs due to zoning ordinances and landlord preference, an exclusive clause to prevent the landlord from leasing another unit to a competitor and compliance issues related to the Americans with Disabilities Act.
The leasing contract needs to address the renewal terms, in the event that the tenant wishes to stay in the current location after the expiration date of the lease. Federal law requires that if a unit was built prior to 1978, it is mandated that the landlord include a disclosure statement if there is the possibility that lead paint may be present in the unit. A radon gas disclosure is required, if radon gas levels have been found on the premises above the levels of federal and state guidelines. A commercial lease should document how the lease can be terminated, in the event the tenant is unable to stay full term.
It is important to know if the tenant can sublet the space, in part or in its entirety. There are circumstances whereas the tenant closes the business or wishes an alternate location and the lease needs to specify if it can be transferred to another. Commercial leases are offered on the basis of rentable square footage instead of usable square footage. This means that in a shared building, the tenant pays not only for the square footage you are able to use, but also for a portion of the common areas. An example of shared spaces includes the hallways, restrooms, elevators, stairwells, storage areas and lobbies.
There are various types of lease agreements that can be negotiated for entering a rental arrangement with a commercial entity. A gross lease typically is an agreement that the tenant pays a monthly amount that is inclusive of all expenses regarding the property, such as the property taxes, insurance, maintenance and utilities. This is a set fee that gives the tenant an expectation of exactly what their monthly expenses will be. Other types of agreements are triple net leases, double net leases, single net leases and modified gross leases. Each variation allows for different calculations of payment for the expenses of the property, divided between the landlord and the tenant.
Starting a business is an exhilarating experience, however commercial leasing contracts must be handled proactively in the negotiation phase to minimize or prevent future litigation issues. The Boutty Law Firm has extensive experience in all real estate matters. We can counsel and represent you in the initial phase of a rental agreement or with disputes that can result from the tenant or landlord’s breach of the lease, terminating lease agreements, constructive eviction and delinquency in rent eviction proceedings. If you are a commercial property owner or a tenant, let the Boutty Law Firm handle your diverse business needs.
