2020-spring-commercial-lease

Commercial Leases: The Devil Is in the Detail

Whether you are renting a few hundred or several hundred thousand square feet of commercial space, you should be sure to take a close look at all of the terms of your commercial lease before “signing on the dotted line   In my practice as a corporate attorney, a number of leases have come across […]

Whether you are renting a few hundred or several hundred thousand square feet of commercial space, you should be sure to take a close look at all of the terms of your commercial lease before “signing on the dotted line   In my practice as a corporate attorney, a number of leases have come across my desk where the landlord has simply changed the name of the tenant, rather than carefully draft a new lease with the new tenant’s specific business and use in mind.  Below, I’ve set out just a few of the standard lease terms that can often cause issues for a commercial tenant during its lease term.

1.  Description of the Leased Premises

It’s not uncommon for a lease to include a vague or generic description of the premises.  However, as the tenant, you will want to ensure that the space described in the lease accurately reflects what you thought you were getting and what you will need to operate your business.  Are you renting an entire building, a floor, or a retail kiosk in a shopping mall?  Should the leased premises include additional storage, parking spaces, access to the premises?  None of these items should be presumed to be included and should be specifically provided in the lease terms.

2.  Use

Your lease should provide how you are permitted to use the leased premises.  As the tenant, you will want this provision to be as broad as possible, in order to incorporate all potential uses ancillary to your intended business, and even those you may not necessarily foresee.  For example, if you are operating a hair salon, you may want to include makeup and waxing services and the sale of hair and beauty products as permitted uses.  Additionally, if possible, the use provision should include any “lawful use” in order to permit the expansion of your business.  You will also want to carefully review any exclusive uses of the other tenants, if any, and prohibited uses, to ensure there is no overlap with your business.     

3.  Rent and Additional Rent

Generally, the tenant will be responsible for “base rent” or “minimum rent” and “additional rent” or “CAM” (Common Area Maintenance).  Knowing what is included in each is imperative to budgeting for and managing your business’s overhead.  Base/Minimum Rent constitutes the monthly rental charge for the leased premises, most often set out on square foot per year basis.  Depending on the length of a lease, it is not uncommon for it to include periodic increases in Base Rent during the lease term based on a percentage of the then-current Base Rent or the Consumer Price Index.  Base Rent or Minimum Rent is so named due to the fact that it does not include the tenant’s share of other non-fixed, fluctuating costs due under the lease, or the “additional rent” or “CAM.”

Some of the fluctuating costs included in Additional Rent/CAM are common area maintenance, operating costs, utilities, real estate taxes, and insurance premiums, HVAC costs, and other administrative fees relative to the entire building, complex, or shopping center.  The amount of additional rent attributed to each tenant is generally based on such tenant’s “proportionate share” of the total net rentable square footage.  A careful analysis of the costs included in the Additional Rent/CAM is recommended to avoid any surprises.

4.  Termination

One of the most contested commercial lease provisions is the termination provision.  Obviously, as the tenant, you want the ability to terminate the lease early; however, most commercial leases do not include a voluntary termination option for the tenant.  If your lease does not include a voluntary termination provision, you will want to make sure that the lease does include the ability to assign the lease or to sublet the premises.  Whether your lease includes the ability to terminate the lease early, assign the lease or sublet the premises, you will want to thoroughly review the terms of the applicable provision to see how you would go about exercising such option.  Do you need to obtain landlord consent, and, if so, how do you go about requesting such consent?  Are there requirements that a replacement tenant must meet?  And, most importantly, what is your liability under the lease following a termination, assignment, or sublease?

*.” As with any legal contract, it is advisable to have your commercial lease reviewed by legal counsel.

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