When signing a commercial lease, each party has differing concerns and will want the lease crafted to protect their interests. Regardless of which side you are on, there are a few items that must be clearly drafted in the lease agreement to avoid problems in the future.

 

1. Additional Rent or Common Area Charges

Along with the rent, a typical commercial lease will require that the tenant pay some portion of a common area charge. Usually, this applies to things like utilities (electricity, water, etc.).

It is imperative to spell out exactly what the tenant is responsible for and how much they will pay. If multiple tenants share the structure, the costs may be split among them. Issues arise when one tenant is paying more than their share. For example, some businesses such as a restaurant may use more water than a retail store. Splitting these common area charges is not always fair. Therefore, how it works, how much will be paid, and how the cost is factored must be included in the lease agreement.

 

2. Rent

Another seemingly obvious item is rent. Throughout the lease agreement, it must be clearly stated and computed accurately. It’s essential to have a lease agreement reviewed by an expert to ensure consistency and accuracy. Rent must also be addressed in accordance with things like imminent domain, holdover, and renewals or extensions.

 

3. Renewal and Extension

Another issue with commercial leases that can quickly become a point of contention pertains to renewals and extensions. Many lease agreements fail to address the tenant’s right to review or extend the lease term. Landlords should require advance notice of up to 180 days before the current lease ends. Deadlines and methods of notification should be clearly spelled out.

Another missed opportunity that can cause serious issues is not clearly defining the rent amount for the extension or renewal, and both sides are left guessing or fighting about it. Often a lease will vaguely refer to the new rate as “prevailing market rate.” This, too, can cause confusion. It is critical to define what “prevailing market rate” means, how it will be measured, and what steps will be taken if both parties cannot agree on the new rent rate or the valuation method.

 

4. Condition of the Premises

The question of liability comes into play if the conditions of the premises are such that someone (the tenant or a customer of theirs) gets hurt. Protection against this becoming a big issue should be covered by a “condition of the premises” clause that indemnifies the landlord by spelling out that the lease provides “no implied warranty of habitability or fitness for use.”

 

5. Improvements

Any improvements planned or made to the property must be explicitly covered in the lease agreement to protect all parties. An example would be “construction liens arising out of the tenant’s improvements will also extend to the interests of the landlord.”
Before signing any commercial lease, have it thoroughly reviewed by your attorney first to ensure you are protected.

 

About the Author: David Podein is a partner with Haber Law and has been with the firm since 2009. He concentrates his practice in the areas of real estate, condominium/community association representation, secured financing, and related business matters.