LEASES -TEN ISSUES TO CONSIDER BEFORE SIGNING A LEASE 

 

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1.Write it down!

This sounds obvious, but you can avoid lots of disputes and misunderstandings by writing down the terms and conditions of your agreement and including it in your document.  If you have a letter of intent from the landlord and agree to all of those terms, make sure they are all in the lease.  Otherwise, they will most likely not be enforceable.

2.Read it or have someone explain it to you … and make sure to negotiate

When presented with a “standard contract” or “standard lease,” you need to read and understand it, including the “fine print.”  You are legally bound by this agreement.

3.Rent (Base Rent & Additional Rent)

When do you have to start paying?  What is included in the rent, and what additional charges can Landlord pass-through to Tenant (utilities, taxes, janitorial services, base building improvements, common area maintenance, operating expenses)?  If rent is based on square feet, make sure you and Landlord agree on size of the space.  Does rent increase by fixed amount every year?  Do you have to pay rent even if you can’t occupy?

4.Term and Option to Extend

The term sets the length of time you’re entitled to occupy the space.  You can often negotiate for “options” to extend the term.  You need to understand when you can exercise the option (usually a window of time well before expiration of initial term).  You also need to understand how the rent you pay during extension term will be determined.

5.Condition of Premises

In what condition will the Premises be upon delivery?  Make sure heating and air conditioning are in good working order and the premises is up to code, including upgrades that may be triggered by Tenant improvement work (ADA bathrooms, for example).  Beware “as-is” provision.

6.Landlord/Tenant Improvements

Who is responsible for improving the space to suit your needs?  Who is responsible for paying for improvements (be specific)?  Will Landlord give a “tenant improvement allowance” to offset the cost?  Can you defray paying rent until tenant improvements are done?

7.Maintenance and Repairs

Who is responsible for fixing what?  Usually Landlord maintains the “base building” such as outside stucco, building trim (beware the pass-through costs!), and Tenant maintains fixtures and equipment and walls within the premises.

8.Insurance

Commercial General Liability (CGL) insurance.  Get it.  Don’t let it lapse.  List the Landlord as additional insured.  Require the Landlord to carry property insurance that includes a “waiver of subrogation” so Landlord’s insurance carrier can’t sue you to collect an otherwise insured claim.  Put this in the Lease.

9.Assignments and Subletting

If you sell the business, can you assign the Lease to the new buyer?  If your business shrinks, can you sublease a portion of the space to defray costs?  Most landlords will allow this, with their prior approval “not to be unreasonably withheld.”  This is an important way to give your business flexibility if you are new and/or growing.

10.Default/Notices and Right to Cure

There are two basic kinds of default:  economic (failure to pay rent) and non-economic (failure to perform an obligation under the Lease).  Make sure the lease includes a “notice and cure period” – you are only in default after notice from Landlord and default continues for a period of time after notice (usually 10 days for non-payment of rent, 30 days for failure to perform non-economic obligation, etc.).

 

Need help with drafting, review or negotiation of a commercial lease? Nancy Lewellen can help you do this with ease.  Contact her today at nyl@palladianlawgroup.com or 415-399-0993 for a free 15-minute consultation.