Protecting Your Interests In Commercial Leases

There are both commercial and residential leases. Most of my legal services relate to commercial leases. All business owners, except those who own their own premises or work out of their home, will need to enter into a commercial lease. For many business and practice owners, far too little attention is given to the legal issues. The commercial lease document is often long and can be daunting to read. Also, if you are buying a business or starting a franchise, it is easy to become distracted with your purchase transaction.

Often, I will categorize issues into areas of high, middle and low concern. This lets me work with clients by focusing on the more important terms and working our way down the list. After this review, clients can decide if they want to deal with the landlord or use my services (or sometimes their broker) to negotiate the terms or changes to the lease.

Most prospective tenants focus on the economic factors such as rent, length, options to extend, periodic rent increases, deposits and so forth. Many forego legal assistance thinking that the remaining issues, which are noneconomic, won’t affect them much since they are standard provisions.

When you think that the legal and/or standard lease provisions do not need much attention, consider that most so-called noneconomic provisions have dollar consequences. For example, if you negotiate an option to extend your lease for five years and the lease also states that the option can’t be transferred to a new tenant (i.e., the future buyer of your business), when you go to sell your business and transfer the lease, the new tenant (new buyer) won’t get this option to extend and your selling price may be affected. Keep in mind that there are no standard terms; almost all leases were custom prepared for the landlord and provide favorable outcomes for it, but not necessarily for the tenant. One final thought: Try to get a copy of the proposed lease (or existing one if the lease is being assumed) as early as possible to avoid being rushed into decisions.