By Brian P. Cullen, Attorney, Lewis & Van Sickle, LLC, Green Bay and Pulaski, WI
When a commercial tenant begins negotiations with a potential Landlord, often the two parties will agree with some of the basic lease terms, such as the rent amount and the length of the lease term. When negotiations start getting more serious, the Landlord will usually give the tenant a copy of a lease agreement, drafted by an attorney on behalf of the Landlord, for the tenant to review.
Realistically, unless the tenant’s business is a fortune 500 company, then it is very unlikely that the tenant is going to be signing a pro-tenant lease agreement. However, there are certain clauses that a commercial tenant should really look into before entering into a commercial lease. When reviewing a lease agreement, the tenant’s goal should be to protect themselves, keep terms as flexible for tenant and save costs as much as they possibly can.
- Damage and Destruction.
Commercial leases often include clauses that state that if less than 50% of the tenant’s rented space is deemed untenable by fire, water damage, etc. then the tenant’s will rent will be abated until the Landlord repairs the premises. This clause may sound like a good deal at first. But can the tenant’s business handle such a loss in space? Before signing the lease, the tenant should consider what percentage of the leased space, if any, their business can afford to lose without substantially affecting their business operations.
Commercial leases often include very long, wordy and complex language relating to the tenant’s insurance coverage on the leased space. In short, the landlord will try to push as much liability for any insurance-related issues onto the Tenant as the Landlord possibly can. Before signing the lease, a tenant should speak with their insurance provider to analyze what the cost would be to obtain an insurance policy that complies with what the Landlord is requesting.
- Compliance with laws, codes, and ordinances.
A commercial tenant does not want to find themselves in a situation where a government entity is trying to find the tenant responsible for correcting issues related to fire codes, ADA compliance, asbestos, or any other regulations relating to the leased premises. Before signing the lease, make sure that the lease clearly states that those issues are the Landlord’s responsibility.
Every lease should clearly address how the real estate taxes on the property are going to be handled. Otherwise, the tenant might find themselves in a dispute over paying real estate taxes or not knowing that they are responsible for the real estate taxes. Furthermore, a commercial tenant should at least make the cost of any present or future special assessments relating to the building onto the Landlord.
- Common Area Maintenance (CAM) Expenses.
Landlords try to push the cleaning and upkeep costs of maintaining common areas onto the Tenant. Tenants should make sure this clause is at least limited to general cleaning and maintenance. The Tenant does not want to find themselves on the hook for the cost of major renovations to the building’s common areas.
There are many more clauses contained within a commercial lease agreement than the ones I address above. However, the best tip that I can give to commercial tenants is to make sure they fully understand every word that is contained in the lease agreement. If you do not understand something in the lease agreement, seek an attorney, accountant, insurance agent, etc. to better explain the terms to them.