7 basic rights you should be aware when leasing a commercial property
Taking out a commercial lease is an important step in the establishment and growth of your company. However, you must ensure that you are getting the best deal possible and that the terms and conditions of the lease are sustainable. There is no such thing as a legally-mandated standard lease. Anyone who tells you there is not being truthful. All commercial lease contracts are subject to negotiation. Nothing is final until you and the landlord have signed the contract.
That said, you do have rights as a commercial tenant. The landlord does not have absolute power over your tenancy. They cannot act arbitrarily and unreservedly in pursuit of gain and profit. Here are 7 basic rights you have as a commercial tenant:
1. The right to have clear common area maintenance terms
The CAM (common area maintenance) section of the lease tends to be the most confusing. You must insist on clarity before you sign anything.
The rent that you are charged should be based on the overall size of the building, not the percentage of the building rented at a particular time. You should not have to pay for activities related to the landlord’s legal fees or marketing efforts. You should also get a detailed accounting of any administration fees. These should not be more than 3 percent, and they should not be used to pay for the landlord’s employees or renovation costs in other units.
2. The right to a CAM stop lease
Most leases require you to pay a proportionate share of CAM fees, property taxes, and repair and maintenance costs in addition to the rent. However, you are obligated to pay only for an increase in CAM fees and property taxes. You can ask the landlord for a CAM stop lease to ensure that this is so. You can also ask for a cap on the CAM so that it does not increase more than a negotiated percent. It is important to monitor how CAM fees increase during the term of your lease. You have a right to receive a complete breakdown of such charges.
3. The right to assignment
If you are like most companies, the success of your business depends a great deal on your location. This may owe to market proximity or cost-effectiveness. You should preserve your right to have someone else take on the lease if you sell your business. There may come a point at which you decide to sell your shop at that location or decide to relocate to another office building. Many landlords want the right to terminate the lease in such instances. However, this is not automatic, and you should request the landlord to remove this provision if it is in the lease. The latter can always be renegotiated so that both you and the landlord are protected.
4. The right to participate in arbitration
Many contracts include arbitration clauses. These commit the parties to the contract to resolve disputes through arbitration rather than litigation. This is a good mechanism to have in a contract, as it will save you from having to go through a costly litigation process with the landlord should a point of contention arise. However, you must defend your right to participate in selecting the arbitrator and the range of other decisions that must be made if at any point you must go before such a tribunal.
5. The right to a sublessee
If you rent a large office space, it is good business sense to share the rent with another company that may be interested. This may not have been your intention when you first signed the lease. However, changes in the organization of your company may have led to a significant downsizing, which created more than enough space to share with another business.
Many landlords do not like sublessee arrangements, but you should fight for the right to have one. It is a rather straightforward proposition: you continue to pay the rent and the sublessee pays you their portion of it.
6. The right to avoid excessive capital expenditures
You should avoid signing any lease that shifts the cost for major renovation, refurbishment, or replacement work to you. In the event that you are renting a space that is already scheduled to undergo major repair or restructuring work, it is possible to strike a deal with the landlord in which you offer to pay for only part of the cost. Or, you can make yourself responsible for all maintenance to the space that you are renting for the entire year. A range of other options are available. The main thing is not to be sucked into paying for a repair or renovation project that the landlord would have had to undertake anyway.
7. The right to have your attorney negotiate on your behalf
Your attorney should review all documents related to the lease. They should be present when you are negotiating in-person with the landlord. There may be times when it is best for your lawyer to do all the negotiating on your behalf. Some landlords do not like this; they prefer to work face-to-face with the people who will be renting in their building. However, as a business you have the right to leave all such matters to your company’s attorney.
The Importance of Retaining Legal Counsel
Boss lawyers can help you create and negotiate the commercial tenant agreement that is best for your business. Leasing language can be obscure and difficult to understand. Given the impact that a commercial lease can have on the financial health of your company, you want to have a clear and exact understanding of your rights and responsibilities as a tenant. Only an experienced attorney with specialist knowledge in this area of law can help guide you through the perplexities of lease agreements.
The bottom line is that if you are looking to establish your company in an office building you will need legal representation. You should contact lawyers with proven expertise and insight into commercial lease law.