Last week, we gave you five terms you can expect to see on a standard commercial lease. This week, we will offer five more.
Remember that before entering any negotiations with a commercial landlord, it’s important to have professional representation. Professional representation provides you the good working knowledge of commercial leases that should also help you negotiate a better contract and avoid legal issues down the road
1. Use and Exclusives Clauses
Use and exclusive clauses are some of the trickiest parts of a commercial lease. They define how you can and cannot use the property you’re leasing. These clauses can be very specific or very broad, so read them very carefully and really think ahead to ensure that you are ok with the restrictions the landlord is putting in place. For instance, landlords might have use clauses that:
- Restrict the type of business you can conduct, which may preclude you from expanding your business into new areas.
- Restrict the manner and style of any signs or advertising on the premises.
An exclusive is the other side of a use clause, and they state that you alone can do something and other tenants cannot. These are often used to ensure that competitors can’t move in next door. An exclusive clause of one tenant becomes a use clause for another tenant. Typically only well-established tenants will have the power to get exclusive clauses.
2. Improvement and Alterations Clauses
The ability to improve and alter the premises often takes up a lot of the lease contract and is a vitally important point. Issues about design, aesthetics, and what is “appropriate” can be complex, so expect to negotiate a lot over this issue. In addition to deciding what is allowed and what is not, also consider who should pay for any changes and how those changes impact rent.
3. Maintenance Clause
It may not be the most exciting of clauses, but maintenance clauses can be one of the biggest sources of strife between a tenant and a landlord. Aside from the initial issues of what bills will be paid and by whom, pay careful attention to who is responsible when problems arise, how any maintenance issues are to be resolved, and how they will impact rent. Landlords may also put in generic language about keeping the building “up to code” – make sure that the landlord defines exactly what codes he or she is referring to.
4. Insurance Clause
There are a host of business insurance options available, and your landlord may require you to carry basic forms of insurance such as property and liability insurance. In addition to the basic forms of insurance, consider negotiating for rental interruption insurance (in case something like a natural disaster disrupts your business) and leasehold insurance (to protect you if your lease is canceled for reasons beyond your control).
5. Operating Expenses and Taxes
Landlords typically treat operating expenses and real estate taxes either as an inclusion in the gross rental rate or as an additional cost to Tenant to be determined by the Tenant’s proportionate share of the building they occupy. If Landlord charges Tenant for operating expenses and taxes as an additional cost to Tenant, these costs may increase annually due to tax and other price increases for the Landlord to operate the building.
There are a host of other significant clauses to keep in mind when negotiating commercial leases. Professional representation can help in understanding these clauses.