For Tenants on Commercial Leases

Online shopping and the recession have hurt commercial retail owners. Many large stores have disappeared including Borders, Circuit City, Woolworth, Tower Records, CompUSA, and Mervyns. This has allowed some commercial tenants to have more negotiating power. So please make sure that when negotiating a commercial lease that you consider these tips to get a favorable lease now and into the future.

Your business will need to cover your share of common costs. Thus, you want to make sure that these pass-throughs are contracted at reasonable prices, to arm’s-length vendors, with a good reputation. Try to cap the pass-throughs.

Make sure your potential future landlord discloses any side agreements that may impact tenants. One such agreement may be a covenant that the landlord cannot lease to certain types of businesses that would compete with an existing tenant. This may be a complimentary business to your business or may over-lap in some way with your business and it is better to know ahead of time rather than finding out once moved in.

It is best to make sure that your lease is consistent with “good faith, reasonableness and timeliness” and doesn’t have an unenforceable clause. Also, don’t waive your right to a jury trial, jury’s can be sympathetic to a smaller business being bullied and the landlord may not want to risk losing in front of a jury. Landlords will try to limit their exposure so that damages you may be granted to be paid by the landlord will be limited to the equity in the mall. If the mall is highly leveraged and has gone down in value it could mean that you will not have any damages paid to you, thus making the lease effectively unenforceable.

Commercial investors are often highly dependent on a large anchor tenant and they may give the anchor a lot of power. This can act as an easement on you and can allow the anchor to veto things you may want to do. Ask for a waiver and that the anchor provides in writing that they will honor your quiet enjoyment.

If you wish to have an option to renew, make sure to have a clear measure of what the rent will be if you decide to renew. An option to renew is meaningless if they can set an unreasonable price that would drive you out of the space anyways.

It is a good idea if you have a commercial loan, line of credit, or think that you may in the future to have your banker look over the lease. You don’t want to interfere with covenants of a loan or prevent a bank from wanting to lend to you because unfavorable lease terms, such as not being able to assign the lease if you default on the loan.

Make sure to have everything in writing. Verbal assurances are very hard to enforce and statements that they have not or will not enforce certain lease clauses put you in a hard position if they decide they wish to enforce them. Similarly, you need to understand your lease before you sign it. It is important to have a lawyer review the lease and that you ask any questions of them before signing the lease.

Tell me your stories. I am not a lawyer and cannot give legal advice. However, I can help you with the commercial leasing process, in many ways through selecting potential properties, negotiating terms, etc. Please comment, write or call me, I would love to hear from you.

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