Commercial Leases are Negotiated
Commercial leases are contracts used to rent property to another person so that the person can run a business on the premises. Every business is different and each piece of real-estate is unique. There is no such thing as a “one size fits all” commercial lease. Like everything else in business, the terms of a commercial lease are subject to negotiation.
Common issues addressed in the negotiation:
- How much is the rent?
- Will the Tenant pay a fixed base rent, a percentage of gross sales, or both?
- Does are the rent increases and how much are they?
- How long is the first term of the lease?
- How long are the option terms?
- Does the lease automatically renew?
- Who pays the property taxes?
- Does the tenant pay to keep up the landscaping?
- Who pays for repairs?
- Is there a threshold for minor repairs?
- Is there a cap for major repairs?
- Is the tenant required to pay sales tax as a part of the rent?
- Who pays what types of insurance and how much coverage?
- Is there an early termination clause?
- What happens in the event that the Landlord sells the building?
Understanding where problems arise:
There are many differences between residential and commercial leases. For example, in a Commercial Lease you often have terms of 10 years or more. When you add options and renewals to the lease, you may have a contract that will last longer than you will be alive. The longer the lease, the greater the chance that there will be a problem. Whether you are the Landlord or Tenant, you need to understand the lease and take steps to prevent minor issues from becoming problems.
Commercial Real Estate Attorney
Without an understanding of the issues that are likely to arise during and at the end of your lease, you will not know what you should put in your lease. If you are have commercial property or are looking to rent then make a list of the issues related to the business and the property. Use that list to guide you in drafting your commercial lease. After you finish the list then you may want to contact a lawyer to check the issues and give suggestions.
John M. Iriye is a member of: