Negotiating a Commercial Lease
Posted on Wednesday, July 18, 2018
ShareA commercial real estate lease, like any other contract, can be negotiated. Do not use or accept a form lease submitted to you by the another party. The lease should be slanted so that you obtain the maximum legal, economic and tax advantages.
Keep in mind that any ambiguities in the lease are usually construed by the courts against the person who drew it -- in many cases, the landlord.
Before signing a lease, you should understand not only the terms contained in it, but also the legal and tax implications of those terms. To fully and adequately protect your rights, here are some important items that should be contained in the lease:
A tenant can move in and start paying rent after a certificate of occupancy has been issued; the premises are ready per specifications and plans and only minor details of construction, decoration or mechanical adjustments remain to be completed.
If possession is delayed through no fault of the tenant, what are the remedies? They might include rent abatement, money damages, cancellation or reimbursement of prepaid deposits.
Rent should be stated as flat rent, step-up rent (gradual increase in rent), percentage of gross sales or base rent plus percentage of net sales. In some cases, renters also use an "expense-participating lease," which involves fixed rent plus a share of real estate taxes, insurance and certain repairs.
Periodic rent increases should be specified according to one of the following methods: operating expenses (pro rata share), the consumer price index or a fixed percentage with a maximum cap on the increase.
Will the landlord or the tenant provide and pay for heating, ventilating, air conditioning, electric lighting, water, janitorial service, security and snow removal?
What about a tenant's right to remove fixtures? What about alterations owned or paid for by the tenant, such as improvements made at the beginning of the lease?
A warranty by the landlord might be included that states any use, storage, treatment or transportation of hazardous substances on the premises must be in compliance with all applicable federal, state and local laws, regulations and ordinances. In addition, the landlord should include a warranty that no release, leak, discharge, spill, disposal or emission of hazardous substances has occurred on the premises.
Also include a statement about the presence of any hazardous substances on the premises before the tenant took occupancy or placed there by the landlord as part of a renovation of the premises. The landlord should agree to indemnify and hold harmless the tenant from any claims, damages, fines, judgments, penalties, liabilities and costs incurred because of an investigation of the site or any clean up, removal or restoration mandated by federal, state or local agencies.
Get professional help before signing any contract. Contact your attorney if you need assistance.
Posted in Tax And Accounting Topics For Business
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.