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5 Terms to Understand When Completing a Commercial Lease Review

Posted by Jane F. Bolin, Esq. | Jan 05, 2022 | 0 Comments

Commercial leases are complicated documents that include numerous terms and conditions you need to understand before signing

Finding the perfect space for your business to lease is an exciting time, but it isn't without its share of stress. After all, you could find yourself responsible for moving the entire company to a new location and all the work that goes along with that role. 

You'll also have to negotiate and sign a lease agreement before finalizing the move, a job that could make or break the future of your company. 

It's a good idea to complete a lease review with a lawyer before signing any legal documents to ensure you can live with the terms and conditions the landlord presents to you. This step also makes it easier to negotiate with the building owner.

Here's a look at five of the most important terms you need to understand before entering any commercial lease agreement.

Key takeaways

  • Commercial leases are complicated documents
  • You'll want to understand all the critical terms and conditions
  • Having an attorney complete a lease review is the safest route to take

1. Rent amount

Before all else, you'll need to know how much you're paying every month. While this condition sounds straightforward, there could be some items you can negotiate before finalizing the agreement. 

In some cases, your landlord might base rent charges on the space's square footage. However, you'll want to ensure this number represents the unit's usable square footage and doesn't include space shared with other tenants. While you'll still have to pay for this shared space if your business has access to it, it should be available at a discounted rate that's split between the building's other renters. 

You should also figure out how rent increases work, as they're usually a certain percentage of the previous year's rent. However, these increases are negotiable, and you can sometimes convince your landlord to put a cap on them throughout your lease.

2. Additional expenses

There are always additional expenses when signing a lease, and your lease review will ensure you understand what you're on the hook for paying. 

For example, there will likely be a security deposit you'll have to come up with before moving into the building. The document should clearly explain the exact amount and its conditions for return.

You might also have to pay for things like insurance, maintenance, repairs, security, parking, property taxes, modifications, and utilities, depending on your lease structure. 

Make sure you understand how all these terms work. You don't want to end up paying for significant repairs to the building in the future because your landlord snuck a provision into the contract before you signed it. 

Remember that you can negotiate most of these conditions. If your landlord wants you to pay a significant portion of the building's property taxes during your lease and you're not happy with that, make a counteroffer that you feel is more in line with what you're willing to pay.

3. Personal exposure

Your personal exposure is an important topic to touch on because you don't want to end up liable for financial penalties if your business defaults on its obligations. Some landlords will insist that the business owner has some skin in the game, which can be a dealbreaker when negotiating the lease. 

The idea is that if your company fails and you're unable to make payments on your lease, the landlord can go after you personally for any outstanding money. 

It's a good idea to work carefully with your attorney regarding this section of your lease review. After all, you don't want to end up ruined financially because your business ran into some issues.

4. Length of the lease

The length of your lease is a straightforward concept because it signifies how long you're entitled to the space before you have to renegotiate. Commercial lease agreements are generally between three and five years, although you can negotiate shorter or longer ones in some situations.

There are other terms associated with the length of your contract you should understand, though, because they could become critical toward the end of the lease. 

For example, there could be a condition outlining a lease extension. An extension will generally require both parties to agree to it in writing before the original lease expires.

Holdover rent is another term worth learning, as it indicates a rent increase if you stay in the building after your lease expires without an extension in place. A holdover generally occurs when moving to a new space that isn't ready yet, as you might need a few additional weeks in your current spot.

It's worth noting that some landlords will attempt to charge as much as 250% of your base rent in holdover rent, but you can negotiate this condition before signing anything.

5. Non-disturbance clause

What happens when landlords don't live up to their part of the bargain? For example, there could be situations where your landlord fails to make mortgage payments on the building, hurting your business in the process. You'll probably be evicted in this scenario unless you've negotiated a non-disturbance agreement.

With a non-disturbance agreement, as long as you continue making your payments on time, you're allowed to stay in the building. You'll begin making your payments to the bank or lender that takes control of the building in this situation, ensuring your company doesn't have to rush out to find another location.

Get the legal help you need

Negotiating a commercial lease can be confusing. Your landlord could include countless terms that might not seem important at the time but could cost you money in the future. As a result, it's a good idea to get the assistance you need by having an attorney handle your lease review.

PeytonBolin has a team of real estate lawyers who can assist as you negotiate favorable terms on your next commercial lease. We can provide lease review assistance early in the process, ensuring you understand the terms and conditions before signing the contract. Contact PeytonBolin to begin your Florida commercial lease review today.

About the Author

Jane F. Bolin, Esq.

Founding Member, Managing Partner


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