Commercial Lease Negotiation – Ten Key Issues for Tenants
Negotiating the most favorable lease terms is one of the keys to the success of your business. The following is a list of ten of the critical provisions to be negotiated in any commercial lease.
1) Rent – When does it commence; what is the base rent; will there be percentage rent. Does the rent increase over the lease term?
2) CAM – Stands for “Common Area Maintenance Charges” – this is the additional rent that includes all of the costs that the Landlord expends for maintaining the shopping center or office building. The costs are apportioned to each tenant on a pro rata basis based on square footage (see my prior blog post on Common Area Maintenance charges). Consider a cap on charges and exclusions from items included in CAM charges.
3) Personal Guaranty – is a personal guaranty required, if so, can it be limited in time or amount. Can the personal guaranty be waived in exchange for a greater security deposit?
4) Term – When does the lease begin – does it commence when the lease is signed, when the keys are turned over to the tenant, when the tenant opens for business or some time after that. Does the tenant have an option for an additional term? How and when must the tenant exercise the option to extend?
5) Assignment & Subletting – What are tenant’s rights to assign or sublet the premises, what are Landlord’s requirements prior to consent for assignment or subletting, if a franchise, what are the franchisor’s requirements upon a default by tenant, will the tenant and guarantor be released upon assignment.
6) Use – is the use clause broad enough to cover everything that a tenant intends to do at the premises both currently and in the future, does the use conflict with any other tenant’s exclusive use rights? Can tenant obtain an exclusive right to its use – and what steps will the landlord take to protect tenant’s exclusive use if another tenant violates the restriction?
7) Relocation – Will the Landlord have the right to relocate the tenant to a different space in the shopping center or building? If so, will the Landlord pay the expenses of the relocation? Which expenses?
8) Permits – What are tenant’s options if tenant is unable to obtain the necessary governmental permits in a certain reasonable period of time. Can the tenant cancel the lease?
9) Default – will tenant be given appropriate notice of a default and an ample opportunity to remedy that default, will the notice and opportunity to remedy a default be different for monetary default versus non-monetary default, what if the non-monetary default cannot be cured in that timeframe.
10) Remedies – what are Landlord’s rights on the occurrence of a default, how can tenant soften some of those remedies, is a personal guaranty required, can it be limited.
These are just ten of the critical Lease terms to be negotiated – there are many others that will impact the tenant and its business.
Please contact business attorney Marlyn J. Wiener to review and negotiate your commercial lease.