A well-drafted commercial lease, a contract that clearly addresses all necessary issues, including each party’s rights, obligations, and liabilities that are specific to the property, is essential to ensure your investment in your commercial properties are protected.
A thorough and enforceable contract is a highly technical document, the key to protecting your rights as a commercial landlord, and an investment that will return ten-fold should problems arise.
In addition to revealing many of the unexpected costs that can be incurred when investing in commercial real estate and ensuring you’re kept up to date on the latest legislation, there are many reasons why it is prudent to have an expert draft your lease, including:
Break Down Lease Options
The lease options to consider are many – gross rent lease, modified gross lease, net lease, percentage net lease. A lawyer will help you navigate which choice is best for you, your property and tenants. Additionally, your lawyer will draft provisions for (or prohibition of) subleasing and discuss with you the rewards and risks of an exclusivity clause (your ability to lease neighboring premises to competitors).
Determine Lease Terms
The duration of a commercial property lease can range from month-to-month to years. A lawyer will have your best interests in mind, negotiating for longer-than-shorter lease terms in order that you won’t incur costs to regularly finding new tenants.
In addition to the length of the lease term, a lawyer will advise you and draft extension and renewability options, how and when the lease can be renewed and if there will a right of first refusal to lease an adjoining unit should the tenant be looking to expand.
Protect Your Property
As a property owner, you need to protect your actual property. If you allow for modifications or improvements to your property, your lawyer will negotiate the tenant improvement allowance (known at the TIA), a sum of money that the landlord allocates to the tenant in order to upgrade the current space. The TIA is typically allotted to cover upgrades such as flooring, lighting fixtures, and reconfiguring space to suit the tenant’s needs. Stated as a per-square-foot amount or a total dollar sum, the TIA will lay out any restrictions, the process of approval for those improvements, and, most important, whether the lease grants ownership to the landlord for any “permanent fixtures and improvements” upon the end of the term.
Another consideration relating to the protection and upkeep of your property is maintenance and repair. Your lawyer will draft clauses detailing whether the landlord or the tenant is responsible for all property upkeep and repairs (including systems such as air conditioning, plumbing, etc.), and the consequences if the tenant damages the leased space through their improvements or general use of the property.
Review Termination Conditions
Like any business venture, things can go wrong. A landlord may wish to terminate an existing tenancy for a variety of reasons, including non-payment of rent, conflict with the tenant with respect to use, occupation or renovations made to the property, failing to fulfill other obligations of the lease, or, in some cases, the landlord may look to replace leases inherited from the prior owner with more lucrative ones. Whatever the motivation, a lawyer will clarify the circumstances by which the landlord may terminate the lease and ensure that there are appropriate legal remedies in the event the tenant violates any provision of the lease. In order to be properly protected, the conditions for terminating a lease should be specifically stated, including potential penalties. A lawyer will assist you to understand your rights, responsibilities, and legal remedies should the tenant violate the terms of the lease.
Clearly, given the complexity and the potential losses and liabilities, a skilled, experienced lawyer should help you navigate your options and ensure that you and your investment are fully and completely protected.