What are Key Elements of a Commercial Lease?

Commercial leases are different from residential leases. Commercial leases are governed by different laws, and commercial tenants and landlords have different needs than individuals renting a house or an apartment. At Plyler, Long & Corigliano, LLP, we have worked with many commercial tenants and local businesses negotiating leases for both Tenants and Landlords. When renting or leasing a commercial space, it is wise to be represented by a law firm who is familiar with this type of contract. Our office has a real estate department that specializes in commercial real estate transactions, so contact our Monroe real estate lawyers for help.

Lease Term

The “term” of a lease is its duration. As a tenant, you will agree to rent the property for a certain number of months. You should work with your lawyer to identify the ideal length. Having a shorter lease with options to renew is beneficial because you aren’t locked into a rental relationship and personally burdened with the rental payments if your business ends up closing or relocating.

Base Rent & Escalations

The base rent is the minimum amount of rent you pay as the tenant. However, you will often pay more than the base rent for the duration of the lease. Many landlords request leases that include base rent as well as additional rent for proportionate common area fees, maintenance and real estate taxes. These fees may increase annually and are typical in a commercial lease. We can help draft and negotiate leases for landlords or review and negotiate leases for tenants so that the terms are fair and equitable, and your rights are protected under the lease. Each rental of a commercial space is property and business specific. We can guide you and help to negotiate the terms of your lease so that you are aware of exactly what you are agreeing to, and to make sure the lease terms are fair.

Operating Expenses

A commercial landlord will very likely pass some of the expenses for operating the building onto its tenants. This might represent a large amount of money, so commercial tenants should pay close attention to the added rental portion of the lease. Our office can help determine the correct added rental percentage of your space so that you will not be paying more than your proportionate share of the space you are renting.

Tenant Improvements

Commercial tenants may be able to negotiate certain tenant improvement allowances for the remodeling and renovation of a commercial space. Imagine that you want to open a retail shop in a space that previously housed a café. You’ll want to renovate the space to make it usable. We can help to defer these costs or have the landlord pay some or all of those costs as a rental concession or other.

Subletting

A big question is whether a commercial tenant can sublease its space. This might arise if your business falters or grows quickly and you can’t get out of the lease. Even if you vacate, in most cases you are legally required to continue to pay rent, otherwise you and your business may get sued for the balance of the unpaid rent. Finding someone to sublease can help enormously. Sublease rights are part of many commercial lease negotiations that we can help with.

Termination Clause

A termination option helps tenants, who can exercise the option and get out of the lease. For example, you might sign a lease for 5 years with an option to terminate at 3 years. A termination clause provides protection for a tenant who cannot predict where their business will be in a couple of years.

Renewal Rights

Tenants should consider the possibility that they’ll want to stay in their location for a long time. It’s helpful to include options to renew in the initial lease. This right gives you the option to renew your lease before the landlord offers the space to someone else at either a predetermined rate or at market value at the time of renewal. Our Real Estate Professionals can help to negotiate these options in advance.

Signage Rights

Signage rights are negotiated as part of a commercial lease. Can you put up a sign on the outside of the building or in the window of your space? On the marquee? Does the landlord have to approve of a sign before you hang it?

These are important considerations in any commercial lease. The landlord’s agreements with other tenants could restrict where you display signage, as well as the relative prominence of that signage and can even limit what you can sell in the space you rent. You need a trusted real estate attorney to help guide you through the complications that can arise in a commercial lease.

Dispute Resolution

Increasingly, commercial landlords fret about the costs of litigating disputes involving their leases. A full-blown lawsuit might cost thousands in legal fees and take years to reach trial. Major landlords want to minimize the cost of dispute resolution. We can help both landlords and tenants avoid such situations. Many leases include an arbitration clause, which is a private way of resolving legal disagreements. If you sign, you are limiting yourself to resolving legal disputes this way.

Call Our Real Estate Lawyers for Help

No one inexperienced in lease drafting should try to negotiate their own commercial lease or rely on a realtor who is offering the space for rent. There are many moving parts, and only some of the most critical issues are discussed in this post. Inexperienced business people often get locked into unfavorable leases with no way of getting out. A seasoned real estate lawyer can prevent this from happening by negotiating a lease and revising the lease agreement or drafting an agreement that is fair to both parties, saving money in revisions and re-drafts as well as costs in legal fees for negotiation and review. You need someone who solely represents your interests. Contact Plyler, Long & Corigliano, LLP, today to discuss your real estate needs.

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