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What to look out for when signing a commercial lease

On Behalf of | Oct 23, 2024 | Real Estate Law |

Business owners signing new commercial leases are often very excited about the prospect of obtaining new facilities. They may have big plans for the space and the company. Sometimes, entrepreneurs and business owners let their enthusiasm overwhelm their better judgment.

They may fail to carefully scrutinize the lease in their eagerness to obtain the perfect location for their business operations. Commercial leases are complex, binding executory contracts. They typically persist for multiple years and create a substantial financial responsibility for the organization. It is, therefore, incumbent upon the business owner to look at certain aspects of the lease carefully.

Which terms require the most careful review?

Maintenance responsibility and costs

Some commercial leases pass most of the responsibility for facility maintenance and repairs to the tenant. Those who have never been subject to a commercial lease before may not expect that obligation. Other times, commercial leases impose massive financial responsibility in the form of variable common area maintenance (CAM) fees for shared spaces, like bathrooms and parking lots. Determining what maintenance costs the business may have to cover in addition to base rent is of the utmost importance.

Rules for early termination

Commercial leases are usually multi-year agreements. Many landlords require a minimum two-year lease, although some commercial leases last for five years or longer. If the business fails or needs to move to a different space, it may be responsible for paying the duration of that lease even after vacating the premises. Some leases may include force majeure clauses that allow for the termination of the lease in unusual scenarios, such as after a natural disaster. Other leases may allow for assignment, meaning the tenant can find someone to replace them in the unit.

Restrictions on the use of the space

Commercial tenants often assume that they can do whatever they want at a facility they rent. However, landlords may impose a variety of usage limitations in their leases. From restricting customer access to the space to preventing the business from changing its function, there may be terms in the lease that prevent the company from changing how it operates or shifting how it uses the rented space.

Reviewing a commercial lease with a skilled legal team, and asking for certain concessions, can help protect prospective tenants from unfavorable terms that can cause complications later. A commercial lease is a major commitment that requires careful review for the optimal protection of both parties.