Here are six “things” that I think must be in every commercial real estate lease. You may have a different list. Also, state law may dictate changes or additions.
- The names of the landlord and the tenant. (That’s obvious.)
- The address of the premises. (This may also seem obvious, but in early 2015, I received a lease from a landlord that had no address for the premises – no street, city or state. Nothing. There were also other errors in the lease. When I pointed out these errors, I was told by the landlord that I was being “picky.” The lease took over three years to be signed.)
- Consideration – who’s giving what to whom? (Attorneys Jordan L. Paust and Robert D. Upp in their book “Business Law” defined it as follows: “Consideration is something of value which is a benefit to one party or a loss to the other party. It is the inducement to the contract.”) Rent is the most common form of consideration given by a tenant to a landlord, but it is NOT mandatory. There are many leases (particularly land that’s leased for farming where the tenant grows crops and removes the weeds) in which a tenant takes care of the property, but pays no rent.
- The use – what can the tenant use the space for? In my opinion, this is the most important provision in the lease. (This is different from the question “Why do you as the tenant want to lease space in the first place?” If it takes you longer than five seconds to respond with a succinct answer, you haven’t thought through the question. Remember – leases are LONG TERM CONTRACTS. You cannot terminate a lease except where it states you can (end of the term; fire; possibly landlord’s default; maybe others). You do NOT want to break the lease. Going to war with the landlord is very dangerous and often expensive.)
Once you understand WHY you want to lease the space, then you must determine if the premises can be used for your intended purpose. If you’re the tenant and you cannot use the premises for your intended purpose, then you’re out of business. This provision also protects the landlord, because it can limit the tenant’s activities.
- The term – the beginning and ending dates of the lease.
- Signatures of the landlord and the tenant. Some state laws may permit the exchange of emails as “signatures.” However, I am not an attorney, so I urge you to consult a good commercial real estate attorney about this.
There are dozens, perhaps hundreds, of other provisions that are important and can appear in a lease. But if you don’t have all six of the above, then you have nothing.
