Avoiding the Pitfalls of Commercial Leasing

Signing a commercial lease is how you will procure the space you need to set up your business. To a landlord, that commercial lease is his or her business.  In other words, while your mind is on what happens after you sign, the landlord is focused on what happens before you sign.  It is in his or her best interest to bury language within the lease, most likely with the assistance of an attorney.  This is all the more reason why you should enlist your own real estate attorney to ensure that a trained eye can pick out the pitfalls that may lie in wait within the pages of that lease.  Reading the lease carefully is fundamental, to say the very least. 

Common Area Maintenance

In this space, we have written a great deal about commercial leasing and one aspect that continues to rear its ugly head are those CAM, or Common Area Maintenance fees.  Make no mistake, landlords hope for them to be a source of profit. We are talking about your “share” of the operation and maintenance of the entire building.  There should be room for negotiation here so make sure this ends up in your favor.  Read this section carefully while keeping the following in mind:

• Beware the profit center.  As we said, this provision is a profit center for the landlord.  A landlord can add every imaginable expense involved in running that building.  You should be concerned with maintenance fees for common areas just as the term indicates. Be sure that the costs passed onto you are for features that you will actually be using.
• Know your history.  You can carefully review the history of the building’s CAM charges.  Go back at least three years.  Check the increases against the records of similar buildings to determine if they are reasonable.
• Determination of CAM charges.  Keep an eye out for any language stating that the landlord’s determination of CAM charges is final.  You want to be able to audit these expenses and review the calculations.
• Know your limits.  As long as you are at the negotiation table, see if you can insert a maximum upper limit in this clause.  Try and set a cap so that if CAM charges exceed a certain amount, you can terminate the lease.

Repair & Maintenance

Getting the most money while ensuring the least amount of work is pretty much everyone’s dream so why should a landlord be any exception?  If a landlord can manage to set the terms of a lease so that repairs and maintenance can be passed onto you, what is to stop the landlord?  That is right, read the lease carefully:

• Know what repairs and maintenance are traditionally the landlord’s responsibility.  Make sure there are no provisions passing these responsibilities to the tenant.
• Know the precise definition of the premises you are leasing.  Limit any repairs to the interior of the premises.  You do not want to be responsible for structural elements or building systems such as plumbing, sprinklers or HVAC or HVAC ducts.
• Know what is covered by the landlord’s property insurance.  Be sure that no provision of the lease attempts to pass responsibility for those items onto the tenant.

Damage & Destruction

Damage and destruction clauses are more opportunities for a landlord to grab a tenant’s money.  Before reviewing a damage and destruction provision any further, a vocabulary word needs to be introduced: abatement.  If the landlord opts to continue your lease in the wake of any damage, your rent can be adjusted in proportion to how much your use of the premises is impaired.  Again, let us zoom in on the language and see what warrants a second look.

• The language pertaining to abatement may base the adjustment on the square footage that was damaged or destroyed.  This can be unfair because a tiny area of damage can easily render the rest of the premises unusable.
• Should damage or destruction render the premises off limits indefinitely, you want to be able to terminate the lease.  If that right belongs only to the landlord, you may be out of business indefinitely.

Tenant Improvements

Your future space may need improvements.  You should keep the following in mind when reading the lease:

• Will the landlord be absorbing the cost of these improvements? Will the landlord provide an allowance and/or restrict the design and construction of the improvements?

Writing about the pitfalls one might encounter in signing a commercial lease is a theoretical guide at best.  The reality is that negotiating these leases can be a minefield and only an experienced real estate attorney knows the lay of the land well enough to lead you safely through it.

You have a dream that lies on the other side of the lease agreement.  The lease is the bread and butter of a landlord.  You cannot afford even the slightest oversight when negotiating a commercial lease—it may dramatically impact your monthly expenses.  Do not read another lease without enlisting the aid of a real estate attorney who has experience in commercial leasing.

If you have questions regarding commercial leasing, contact the Law Office of H. Benjamin Sharlin LLC and schedule your free consultation today.

Please be advised that this blog is for informational purposes only, is not legal advice and does not create an attorney-client relationship.