In all fairness, nothing is more daunting and time consuming than reading a commercial lease. However, take note that failing to do so could be ten times more unpleasant. For instance, while most commercial tenants look at the provisions that have a direct economic impact, some of them are hidden clauses that put you at a disadvantage and that you can’t back out from. Let’s explore some of the aspects to carefully evaluate before putting your John Hancock on the contract.
1. The common area maintenance expenses
As the name suggests, this provision refers to the obligation of the tenant to pay a pro rate share of the operation expenses and maintenance of the facility. Unfortunately, some landlords intentionally stretch the list of expenses so it transforms the clause into a source of profit. To avoid paying fees you’re not responsible for, make sure you review the building’s common area maintenance history for the past three years. At the same time, it would be wise to determine whether the contract allows you to kick out absurd clauses and if you have the right to audit the landlord’s expenses.
2. Real property taxes
More often than not, tenants find themselves in the situation of having to pay property taxes for periods outside the validity of the lease. This is usually the case when the landlord has expanded the definition of real property taxes to include further fees assessed against the property. Before signing the contract, read the provision carefully and make sure it’s clearly stipulated that the taxes do not survive the tenancy. In addition, it wouldn’t hurt to negotiate a limitation on potential increases of tenancy in the event of a change in ownership.
3. Compliance with the law
Unless the materials used in the construction or the structural elements are compliant with the law, you will find yourself forced to pay astronomical bills for replacements, alterations or improvements. Consequentially, it is critical that you inquire on whether the facility you’re about to rent is in compliance with all present federal and local laws. Moreover, make sure that your responsibility for compliance with future laws is limited, especially in case the building features certain types of items you will only use during your tenancy.
4. Repairs and maintenance
At times, the provision forces tenants to pay for repairs and maintenance services for areas that are located outside the premises. In general, the tenant is solely responsible for the upkeep and repairs of items and areas found inside the premises, and that he/she is actually using. Therefore, analyse the lease carefully and establish if you’re mandated by contract to pay fees for plumbing, sprinklers, HVAC systems and structural elements. Make sure that the lease clearly stipulates the expense responsibilities for the tenant and the landlord.
5. Subletting and assignment
In the event that you’re renting the commercial space for subletting or assignment, then you will have to obtain the permission of the landlord; otherwise, he is entitled to terminate the lease with no refunds. To avert potential complications, it is imperious that the lease contract includes a clause stipulating that the tenant can subtract from the excess all improvements made as requested by the sub-lessee or assignee. At the same time, it would be wise to check for a recapture clause in the contract, which is basically a request by the tenant that the landlord agrees to triggers that lead to the termination of the contract. In some cases, deleting this clause is not possible; therefore, at least try to insert an option that allows you to withdraw the request if the landlord decides to terminate the lease.
6. Tenant remedies
The tenant remedies clause refers to your rights as a tenant in case the landlord defaults on his obligations. In most situations, commercial leases determine the tenant to waive several remedies provided by the law, so if the landlord defaults then you will have no place to turn to. Perhaps the most important thing to watch out for when you’re negotiating the lease is your repair and deductible rights. As you probably guessed, the clause stipulates that you are allowed to remedy a certain situation, for which you are entitled to deduct the costs from the rent.
7. Termination, relocation and expansion
Tenants who don’t read the leasing contract carefully are bound to find themselves in a situation when they have been relocated or the landlord had the unilateral right to terminate the lease. Even worse, some contracts feature an expansion provision that permits other tenants to expand into your premises. In case these clauses can’t be waivered, make sure that you receive something equally valuable and beneficial in return. For instance, if the landlord decides to relocate you, then the new location should include all the features and options present in the latter premises. In addition, the landlord should be responsible for all your relocation needs, including the improvements necessary at the new location and transportation costs.