Commercial Lease Agreements
Whether you're leasing office, restaurant or retail space, your commercial lease agreement is one of the first—and most important—contracts you'll negotiate on behalf of yourself and/or your company. A commercial lease can make or break your business, so you need to take this agreement very seriously. The stakes are typically much higher for retail or restaurant businesses, because the costs for prime commercial real estate is probably a significant portion of your overall business budget.
A bad lease agreement can tank your business before it even takes off. For example, as the tenant, if your commercial lease involves you making significant improvements to the space, that leaves you particularly open to business-ending, personal guarantee-invoking pitfalls.
But as a new or even experienced entrepreneur, it's difficult to know which provisions (included or omitted) in your commercial lease could ruin your business. That's why our clients hire the attorneys at Business Law Group, along with a commercial real estate broker, to negotiate an LOI (Letter of Intent) with the landlord, preferably one with a CCIM designation.
If you're an entrepreneur who likes to DIY things, now isn't the time to do it by yourself. It's absolutely critical that the commercial lease you sign—and most likely personally guarantee— has been reviewed by an attorney. Similarly, don't expect your residential real estate agent to have the skills necessary to find and advise you on space for your business. Also, residential title companies are often ill-equipped to advise you on the issues that come up in commercial leasing.
What should an ironclad commercial lease include?
Here are the key issues that must be addressed in your commercial and retail lease:
- Access and entry
- Alterations and improvements
- Assignment and subletting
- Attorney's fees
- Commencement date certificate
- Common area prohibitions for malls
- Construction allowance
- Damage or destruction
- Default by landlord
- Default by tenant
- Tenant damages
- End of term
- Governmental regulations
- Hours and days of operation
- Landlord delay
- Landlord maintenance and repair obligations
- “Most Favored Nation” clause
- Operating expenses and taxes
- Percentage rent
- Gross sales exclusions
- Permitted use
- Promotional programs
- Radius restrictions
- Waiver of landlord's lien
- Recordation of the lease in public records
- Subordination, nondisturbance and attornment agreement.
How do I protect my interests as a tenant in a commercial lease?
As the tenant, the key to successfully negotiating your commercial lease is to understand how the provisions listed above could impact your business, what terms are standard, and how to get the most favorable terms your landlord will agree to during negotiations.
You can protect your interest with a two-pronged approach. First, use your commercial broker to submit and negotiate a Letter of Intent (LOI) on your behalf. The landlord will pay the broker's commission; it makes no sense to go this part alone, since your commercial agent has a high likelihood of getting you more favorable terms, than if you negotiate directly with the landlord. If your prospective landlord doesn't want to pay a commission to a real estate agent, this should be a red flag. At that point, you'll certainly need to engage a lawyer to negotiate an LOI directly with your landlord.
The second prong comes once you receive the landlord's initial draft of the lease. Now's the time to have your Business Law Group attorney review the lease, and "mark it up." This means we'll revise the lease, making sure your landlord's provisions are softened to be more reasonable on your behalf. After we send this “red line” version of the lease back to your landlord, we'll typically oversee one more round of revisions before you (as the tenant) and the landlord agree on the commercial lease's final form.
GREAT COMMERCIAL LEASE NEGOTIATION
“Business Law Group reviewed our restaurant lease, and negotiated terms that will protect our significant investment.”
– Linda G.
EASY LEASE AGREEMENT REVIEW
"Amanda was incredibly supportive and easy to talk to! I sent my information on the website form and in minutes she answered me. I reached out to get a lease agreement reviewed and as a small business I have a small budget. She understood that and was willing to work with me. I was nervous to reach out initially just in general because law stuff is intimidating, but I'm so happy I did because now I feel like I have someone in my corner should I need them! She's passionate about women entrepreneurs too! I'll be recommending her every time someone asks me if I know a lawyer! Thanks so much Amanda!"
– CakeFace Soaping
SCHEDULE YOUR CONSULTATION WITH BUSINESS LAW GROUP TODAY
If you're ready to move into a new commercial space, and you've signed a Letter of Intent and need an experienced attorney to review the landlord's proposed contract, we can review your lease. Our lease review cost ranges from $1,250 to $3,500, typically less than one month's rent. Remember, your lease term could be as long as 20 years, so a small investment on the front end ensures you years of success. Schedule your consultation with us today so you can sign your lease agreement with complete peace of mind.