Commercial Leases: A Tenant’s Overview
When you start reading the lease it may sound like a bunch of legal mumbo jumbo, you may have trouble understanding it and/or you may wonder which provision is going to end up costing you in the future. Therefore, from the tenant’s perspective, it is important to carefully and fully review the terms of the lease.
The lease will be drafted by the landlord and, consequently, the landlord will have included provisions or phrases that the landlord likes and/or are favorable to the landlord.
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Negotiating the terms of a commercial lease is a process that is similar to other business negotiations. A tenant should review the lease, determine all of the provisions that the tenant is interested in changing and then prioritizing the list. It is presumed that a landlord will not agree to every change requested by a tenant, so this is where the negotiating comes in. A tenant should be willing to concede on a provision on the bottom of its list in exchange for the landlord agreeing to a provision that is at the top of the list.
In the years that I have been drafting and reviewing commercial leases, I have never come across two leases that are the same. So, if you are told that “this is a standard lease,” it may be the landlord’s standard lease but I am not aware of any such “standard” lease.
With that being said, you should expect that every lease will contain similar provisions or concepts:
- How long is the term of the lease?
- Does the tenant have the right to renew the lease for an additional term?
- How much is the monthly rent?
- Will the tenant be responsible to pay percentage rent?
- Will the tenant be responsible to pay for common area maintenance charges?
- What are the permitted uses for the premises?
- Are there any signage requirements?
- What are the landlord and tenant responsibilities?
- What are the insurance obligations?
- Are there any indemnification obligations?
- Does the lease contain SNDA provisions (subordination, non-disturbance, and attornment), etc.?
I like to say that every section, paragraph and sentence included in a lease is there for a reason. The document is not twenty pages long so it will be a better doorstop. This is why it is important to have your leased reviewed. Plus, if you review your yearly business expenses, the payments made to your landlord probably result in your lease being one of the top expenses your business incurs each year.
An attorney for the landlord drafted the lease, as tenant you should also have an attorney review your lease and advise as to the rights and responsibilities of the parties and discuss negotiation strategies.
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