Ten Commercial Lease Terms for Review: The Business Tenant has More Negotiating Power Than It Thinks
May 04, 2016
By Craig T. Watrous
Your company’s base of operations is its backbone. To fully understand and negotiate the terms and conditions of your commercial lease is essential so that your company has the flexibility and certainty it needs to do business without interruption or unnecessary risks.
The Landlord’s “standard form” commercial lease is often a long, complicated legal document. It’s heavily sided in favor of the Landlord and presented to the tenant as the “standard form” as if to communicate its non-negotiability. However, even minor adjustments in the business lease can add critical flexibility and terms, and a business tenant may have more negotiating power than it thinks. Negotiating success can come from well-articulated reasons your proposed changes are necessary, and the following is a preliminary opinion on commercial lease terms and the grounds on which they can and should be adjusted:
- Term and description of the leased premises. What areas of the project beyond the premises might the business need to operate? This includes parking, utility chases, patios, rooftops, and many other forms.
- The commercial Landlord’s obligations regarding the premises, building, and common areas. Construction and repair obligations are often a trap and sometimes disproportionate to the duration or nature of the lease.
- How is the rent calculated and what is included.
- Inclusions in common area expenses. What are the expected charges, how these expenses are calculated, and what are the audit rights the tenant may have to review these charges.
- Tenant's remedies for the Landlord’s default under the lease. Any terms in this category will typically need to be negotiated as the lease presented to the tenant will usually have none, even if the lease is terminated do to casualty loss, foreclosure or condemnation.
- Landlord's remedies for the Tenant’s default under the lease and the Tenant’s right to cure its defaults. Similar to the above, the Tenant’s rights to “cure” (i.e. correct) any alleged defaults other than payment of rent may need to be negotiated. Damage penalties in favor of the Landlord can be overreaching and could be orchestrated to provide a windfall for the Landlord making them more then whole.
- Relocation. Rights to relocate a Tenant are often reserved in the Landlord. The lease terms here including moving costs or locations the tenant may be moved could be critical.
- Parking. Location, space, maintenance (including snow removal) and adequacy for both customers and employees are critical terms.
- Indemnifications. These may be overly broad and cover things that do not have anything to do with the Tenant or its employees.
- The “Boilerplate”. Read the lease, and real all of it. Often buried in these “miscellaneous” provisions are critical terms that should be reviewed by the company and their legal advisors.
Reasonable and well-articulated changes will bring credibility to the negotiating table and may add value to your company's lease. Understanding what is reasonable from the outset can better position the business tenant to maintain its credibility and obtain successful results in its lease negotiation.
Related Practice Areas:
Commercial Real Estate