Negotiating a Commercial Lease? Be Sure to Address These Issues
When it comes time for your business to move into a new commercial space, make sure you consider the terms of your lease agreement from both business and legal perspectives. While there are some common terms and clauses in many commercial leases, many landlords and property managers incorporate complicated and sometimes unusual terms and conditions. As you review your commercial lease, pay special attention to the following issues, which can greatly affect your legal rights and obligations.
The Lease Commencement Date
Commercial leases typically will provide a rent commencement date, which may be the same as the lease commencement date. Or not. If the landlord is performing improvements to ready the space for your arrival, a specific date for the commencement of rent payments could become a problem if that date arrives and you do not yet have possession of the premises because the landlord’s contractors are still working in your space. Nobody wants to be on the hook for rent payments for a space that cannot yet be occupied. A better approach is to avoid including in the lease a specific date for commencement, and instead state that the commencement date will be the date the landlord actually delivers possession of the premises to you. Alternatively, you can negotiate a provision that triggers penalties for the landlord or additional benefits for you, should the property not be available to you on the anticipated rent commencement date due to the fault of landlord’s contractors.
Your initial lease term will likely be a period of three to five years, or perhaps longer. Instead, you may be able to negotiate a shorter initial term, with the option to extend at a later date. This will afford you the right, but not the obligation to continue with the lease for an additional period of years. Be sure that any notice required to terminate the lease or exercise your option to extend at the end of the initial lease term is clear and not subject to an unfavorable interpretation. Carefully calendar the dates on which to exercise your option to extend the lease.
Subletting and AssignmentIf you are locked into a long-term lease, you will likely want to preserve some flexibility in the event you outgrow the space or need to vacate the premises for other reasons. Be careful to review the limitations and procedures applicable to requesting the landlord’s permission to assign or sublet the space. Assigning or subletting your leased space without complying with the exact terms required by the lease often will result in an un-curable default of the lease and give the landlord the right to terminate the lease.
Subordination and Non-disturbance Rights
What if the landlord fails to comply with the terms of the lease? If a lender forecloses on your landlord, your commercial lease agreement could be at risk because the landlord’s mortgage agreement can supersede your lease. If the property you are negotiating to rent is subject to claims that will be superior to your lease agreement, consider negotiating a “non-disturbance agreement” stating that if a superior rights holder forecloses the property, your lease agreement will be recognized and honored as long as you fulfill your obligations according to the lease.
These represent just a few of the myriad provisions in a standard commercial lease that require special attention and care in review. If you are considering leasing commercial space for your business, please contact one of the expert real estate attorneys at Schneiders & Associates, L.L.P. to review your lease, make you aware of potential costs and pitfalls, and assist you with negotiations.