Search for a Clause: What to Look for in a Commercial Lease

Once you are up to speed with the terminology and have learned about the fine print, it is a good idea to take a step back and review the common clauses that comprise your average commercial lease.  It must be noted, however, that there is really no such thing as a “typical” or “standard” commercial lease.  A commercial lease does not carry the same legal restrictions as a residential lease.  Commercial leases are highly adaptive and change according to your bargaining power.  You should familiarize yourself with these key clauses, but also be aware of others that may or may not appear. 

Common Clauses

Any clauses that violate public policy or law are unenforceable.  So just know that while the precise content of a commercial lease may vary, parameters do exist.  In order for a commercial lease to be enforceable, the following clauses must be included:

• Tell us your names.  Remember how many times you were told to sign your name to your work in school?  You even received points for remembering this detail on your SATs.  Why should it be any different with a document as important as a commercial lease?  In this case, however, business names only must be included.  Both the landlord and tenant must indicate whether their business is a partnership, LLC, corporation, etc.
• Describe the premises.  For example, give the precise address and square footage of the rental space and describe the premises to the extent possible, i.e. the first floor and basement.
• How much?  It is a financial transaction, after all.  A commercial lease at least needs to mention how much is due, how it is calculated and when it is due.

Every story must have a beginning and an end.  Your lease is no different.  There must be a lease term: when it begins and when it ends.

Other Clauses

A real estate attorney will initially help you by focusing on the core clauses above.  He or she will then move onto the zigs and zags that commercial leases may take in the form of additional clauses.  While not all of them will appear on any one respective lease, any of these terms can be a potential misstep.

• Security deposit.  Just like with a residential lease, a security deposit will be collected.  You will want to know how your landlord may use it during your tenancy and under what conditions it will be returned.
• Letter of credit.  An alternative to a security deposit for a commercial lease that is not that favorable.  With a commercial lease, you could have your bank issue a letter of credit in place of a security deposit.  The bank essentially agrees to cover what your landlord needs on a case by case basis.  In the end, this is a loan and collateral may be required.  This makes this a far riskier option than simply putting down a security deposit.
• Usage.  Usage of the premises may be delineated in a contract for one simple reason — other tenants may have exclusivity when it comes to how they make their money.  Your lease may inform you that you are not permitted to conduct similar business.

The list goes on.  A lot of details regarding the fine print of commercial leasing have been written about in earlier posts.  Maintenance incurs charges as do utilities.  So, keep an eye out for those. You may want to transfer the space over to a new tenant, who will finish out the lease.  Check your lease for a clause including or barring such a procedure.

The decision to start a business is one of life’s great leaps.  You are to be commended for it.  A real estate attorney can grant you the wings and help guide you to that soft landing in your new commercial space.  Be sure to take time to review and negotiate changes before you sign.  If you have questions regarding commercial leases, contact the Law Office of H. Benjamin Sharlin LLC for a free initial consultation.   

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