Real Estate
There are various aspects of your commercial lease that can be detrimental or helpful to your business. This article will focus specifically on several clauses that will likely be included in the contract that may present challenges to your business if the wording is drafted in such a way that it is more friendly to the landlord than it is to the tenant.
One important note to mention about a commercial lease is the fact that more often than not its terms can often be more complex than a residential lease. It is perhaps for this reason that the consequences of violating the terms of such a lease can often be more consequential than violating the terms of a residential lease. Is therefore a good idea to consult with a real estate attorney who can help you understand each and every important clause or term in your commercial lease before you sign it.
The objective of this article is to point out several such clauses that you should pay close attention to. Or at least that the attorney that you hire will pay attention to and bring to your attention any unfavorable terms that they find.
This clause sets out the parameters for how you are and are not allowed to use the premises. A use clause that is very restrictive may not be too advantageous to your business because it may limit the scope of things that you can do with the space. It may also set out very punitive consequences for any violation.
One problem with a very restrictive permitted use clause is that you do not know what the future of your business looks like, so if you decide in the future to pivot or expand the business in a new direction but the use clause prevents this, what then do you do? Your business may also need to sublet a portion of your space to another business or service that may be important to the success of your business, what do you do if the use clause does not allow this? This is why it is important to be aware of and negotiate this specific clause before you sign on the dotted line.
A relocation clause essentially gives your landlord the right to move your business to another area within the same premises. It is easy to see how this can potentially be problematic for you should this situation ever arise. Landlords often include this term because they want the right to be able to take on a new tenant who may be willing to pay them a higher rental fee. While some landlords will insist on this term being included in your lease, some of the workarounds you have to do are to ensure that the new location is comparable to the old one, that the landlord is responsible for your relocation costs and other incidentals occasioned by the move, and more. You should also be sure to negotiate the rights to early termination if the new premises is not favorable to you.
The option to renew your lease at the end of each term, as well as the terms associated with the renewal, is an important consideration to keep in mind at the very start of the contract. A renewal clause gives you the option to either continue leasing the property or to vacate it. There are, however, certain clauses that often come with a phrase that implies that the parties “agree to agree” on what the renewal terms of the contract will be. You should be very wary of signing any contract that contains that term.
The main concern with a contract that contains an “agreement to agree” clause lies in the fact that you have no way of knowing what the landlord’s thinking will be in terms of a yearly rent increase. His or her proposed increase might be significantly higher than you are comfortable with, or can even afford. And in the event that an agreement cannot be reached then the next logical thing that will happen is for you to vacate the property and find an alternative. This will likely be problematic because you may not have had sufficient time to find a new commercial space and do the necessary tasks to get the business up and running in the new space, which might likely lead to some downtime for the business, and consequently, loss of revenue.
All this can be avoided by ensuring that the renewal clause should give you an idea of what any yearly rental increase might be, or better yet still, what the specific yearly escalated fixed percentage will be if any.
The main tenet of any compliance clause is to ensure that the premises comply with all relevant federal and state laws. A good example is the Americans With Disability Act which requires all businesses that are open to the public to ensure that anyone with a disability is able to access the premises without hindrance. If for whatever reason the premises you intend to lease does not comply with any relevant federal or state law, or building code, chances are that the compliance clause in the lease may seek to absolve the owner of the premises from liability. Unless you are willing to foot the bill for any modifications, you should ensure that the clause is worded in a way that absolves you of liability, and that any future needed modification will be the responsibility of the landlord.
Pay Attention to These Commercial Lease Clauses
The signing of a new commercial real estate lease can sometimes signify a milestone in the life of your business. This might be especially true for a young or new business. The signing of this lease can contribute to the success of your business but on the flip side of that coin, it is not impossible that it can present challenges or hurdles for the business that can lead to its failure.There are various aspects of your commercial lease that can be detrimental or helpful to your business. This article will focus specifically on several clauses that will likely be included in the contract that may present challenges to your business if the wording is drafted in such a way that it is more friendly to the landlord than it is to the tenant.
One important note to mention about a commercial lease is the fact that more often than not its terms can often be more complex than a residential lease. It is perhaps for this reason that the consequences of violating the terms of such a lease can often be more consequential than violating the terms of a residential lease. Is therefore a good idea to consult with a real estate attorney who can help you understand each and every important clause or term in your commercial lease before you sign it.
The objective of this article is to point out several such clauses that you should pay close attention to. Or at least that the attorney that you hire will pay attention to and bring to your attention any unfavorable terms that they find.
Permitted Use Clause
This clause sets out the parameters for how you are and are not allowed to use the premises. A use clause that is very restrictive may not be too advantageous to your business because it may limit the scope of things that you can do with the space. It may also set out very punitive consequences for any violation.
One problem with a very restrictive permitted use clause is that you do not know what the future of your business looks like, so if you decide in the future to pivot or expand the business in a new direction but the use clause prevents this, what then do you do? Your business may also need to sublet a portion of your space to another business or service that may be important to the success of your business, what do you do if the use clause does not allow this? This is why it is important to be aware of and negotiate this specific clause before you sign on the dotted line.
Relocation Clause
A relocation clause essentially gives your landlord the right to move your business to another area within the same premises. It is easy to see how this can potentially be problematic for you should this situation ever arise. Landlords often include this term because they want the right to be able to take on a new tenant who may be willing to pay them a higher rental fee. While some landlords will insist on this term being included in your lease, some of the workarounds you have to do are to ensure that the new location is comparable to the old one, that the landlord is responsible for your relocation costs and other incidentals occasioned by the move, and more. You should also be sure to negotiate the rights to early termination if the new premises is not favorable to you.
Renewal Clause
The option to renew your lease at the end of each term, as well as the terms associated with the renewal, is an important consideration to keep in mind at the very start of the contract. A renewal clause gives you the option to either continue leasing the property or to vacate it. There are, however, certain clauses that often come with a phrase that implies that the parties “agree to agree” on what the renewal terms of the contract will be. You should be very wary of signing any contract that contains that term.
The main concern with a contract that contains an “agreement to agree” clause lies in the fact that you have no way of knowing what the landlord’s thinking will be in terms of a yearly rent increase. His or her proposed increase might be significantly higher than you are comfortable with, or can even afford. And in the event that an agreement cannot be reached then the next logical thing that will happen is for you to vacate the property and find an alternative. This will likely be problematic because you may not have had sufficient time to find a new commercial space and do the necessary tasks to get the business up and running in the new space, which might likely lead to some downtime for the business, and consequently, loss of revenue.
All this can be avoided by ensuring that the renewal clause should give you an idea of what any yearly rental increase might be, or better yet still, what the specific yearly escalated fixed percentage will be if any.
Compliance Clause
The main tenet of any compliance clause is to ensure that the premises comply with all relevant federal and state laws. A good example is the Americans With Disability Act which requires all businesses that are open to the public to ensure that anyone with a disability is able to access the premises without hindrance. If for whatever reason the premises you intend to lease does not comply with any relevant federal or state law, or building code, chances are that the compliance clause in the lease may seek to absolve the owner of the premises from liability. Unless you are willing to foot the bill for any modifications, you should ensure that the clause is worded in a way that absolves you of liability, and that any future needed modification will be the responsibility of the landlord.
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