Tenant Lease Review – How to not be a hostage to your lease
Commercial leases are complex in their nature, as they are the legal “manual” of tenant’s rights, responsibilities and obligations for the location. Often times, the tenant lease can determine the future of their business. In addition to the major monetary points like rent, common area maintenance charges and tenant improvements, leases cover other crucial items:
- When does the lease commence? Should you go for the 3-months of free agreement or tie the start of the rent and CAMs to construction and obtaining the COO?
- Lease rent adjustments. How will the rent increase over the period of the lease? Do the increases seem fair? Do you think your rent in five years will be at the market rates?
- Who covers the Tis? Tenant Improvements are the costs of improvements to the space, covered by the landlord. These costs are what it would take to turn a shelled space into a place open for business. While some tenants would think of it as free money, the value of Tis gets budgeted into the whole lease. Some landlords amortize the cost of Tis through CAMs.
- When is TI money released to the tenant? Is the amount of TIs tied to the actual constitution expenses? Do you need to provide the receipts? Your contractor will want to be paid as soon as the job is done, or even sooner. When will you have access to the landlords’ share of TIs to cover your bills?
- How and when are the expenses passed through?
- When do CAMs commence? Just like with rents, commencement of CAMs is negotiation.
- What does lease abatement mean exactly and what is the schedule? Will you be given your free three months of rent as soon as the lease starts? Or will these occur every 11 months, as in one month off at the end of the first three years?
- What happens if you are unable to keep your business open? Make sure you know your obligations and the amount of rent you will owe if you were to turn your lights off. An experienced landlord would always ask for a personal guarantee if you are a small operator without a large corporate outfit behind you. A personal guarantee means that your personal assets could be exposed to the lawsuit.
- Can you renegotiate your lease? In some cases, a landlord would agree to a temporary change of the terms if you need some extra breathing space to keep the business going.
- How is the renewal handled?
- What are the options?
- Can landlord terminate your lease?
- Can a landlord move your suite without your consideration?
- Is there an exclusivity clause? Is your use protected?
- Do you understand what you’re a liable for in terms of your lease?
- And others.
Whether the landlord uses a standard lease or has one written by an attorney, all items in the lease are negotiable. It is the tenant’s responsibility to protect their own interests. Hiring an attorney to do a lease review ensures that you understand your rights and your obligations and, most importantly, you are not signing a document that will hold you liable for items you should not be liable for. A lease review is an especially smart practice for tenants, who have personal and business assets to protect.