Negotiating Commercial Leases
Accept Just Any
commercial real estate lease, like any other contract, can be
negotiated. Do not use or accept a form lease submitted to you
by the another party. The lease should be slanted so that
you obtain the maximum legal, economic and tax
Keep in mind that any ambiguities in the lease are usually
construed by the courts against the person who drew it ó in
many cases, the landlord.
Get qualified legal advice
before signing any contract.
To fully and
adequately protect your rights, here are some important items
that should be contained in the lease:
A tenant can move in and start paying rent after a
certificate of occupancy has been issued; the premises are
ready per specifications and plans; and only minor details
of construction, decoration or mechanical adjustments remain
to be completed.
If possession is delayed through no fault of the tenant,
what are the remedies? They might include rent abatement,
money damages, cancellation, or reimbursement of prepaid
Rent should be stated as flat rent, step-up rent
(gradual increase in rent), percentage of gross sales or
base rent plus percentage of net sales. In some cases,
renters also use an "expense-participating lease," which
involves fixed rent plus a share of real estate taxes,
insurance and certain repairs.
Periodic rent increases should be specified according to
one of the following methods: operating expenses (pro rata
share), the consumer price index, or a fixed percentage with
a maximum cap on the increase.
Specify whether the landlord or the tenant provides and
pays for heating, ventilating, air conditioning, electric
lighting, water, janitorial service, security and snow
Describe a tenantís right to remove trade fixtures. What
about alterations owned or paid for by the tenant, such as
improvements made at the beginning of the lease?
Include a warranty by the landlord that any use,
storage, treatment or transportation of hazardous substances
on the premises is in compliance with all applicable
federal, state and local laws, regulations and ordinances.
In addition, the landlord should include a warranty that no
release, leak, discharge, spill, disposal or emission of
hazardous substances has occurred on the premises.
Also include a statement about the presence of hazardous
substances on the premises before the tenant took occupancy.
The landlord should agree to indemnify and hold harmless the
tenant from any claims, damages, fines, judgments,
penalties, liabilities and costs incurred because of an
investigation of the site or any clean up, removal or
restoration mandated by federal, state or local agencies.
These are only a few of the many issues involved in a
commercial lease. Before signing, it is important to
understand the terms contained in a lease, and also the legal
and tax implications of those terms.Please call me at (856)
665-2121 BEFORE you sign the lease!