How to Review a Commercial Lease Agreement
It is good to know how to review a commercial lease agreement because it serves as a foundation of your relationship with your tenant. Given the economy, a prospective tenant may want to move into a smaller space. Landlords may be eager to keep or attract tenants, given how many they might have lost.
Rebekah Lusk and her associates offer you many landlord-tenant law services, including commercial lease review. We help clients with property-related issues. A commercial lease attorney can ensure that a client’s actions are on a sound legal footing and their interests are protected, no matter how the economy impacts their business.
Commercial Lease Review Checklist
Each landlord-tenant relationship is unique. Some issues will be more important than others in a particular relationship. Overall, here’s a commercial lease review checklist of things to pay attention to when offering a new lease or if you’re reviewing an existing one.
- Proofread and double-check
Make sure the information is correct:
- Parties’ names and contact information. Your tenant’s business may have a brand name, but a legal entity with a different name may own it. Make sure the person signing it is the right person to do so and is authorized to sign on behalf of the entity.
- Rent amount, security deposit, and other fees.
- The agreement protects your interests
Review the agreement and relevant documents to ensure that what was agreed to orally and in written communications (emails and draft leases) is in the final draft. Make sure the details are included; if not, negotiate until you have the lease nailed down.
- Common Area Maintenance (CAM) fees
The tenant pays CAM fees to the landlord. CAM covers the maintenance costs that benefits all tenants (e.g., parking lot maintenance, lighting, snow-removal, and landscaping). The lease should explain how CAM is calculated. It may be based on the number of tenants (if others leave, it hurts those who remain) or the tenant’s square footage.
- Competitors as neighbors?
Tenants may not want a competing business nearby, especially if they’re working in retail or restaurants. This would be bad for a tenant because some customers may try the competitor, increasing the chances of decreased sales or going out of business. This would be bad for you as property owner as well, because it may deprive you of a paying tenant. You’d also face the costs of finding a new tenant and missing rent when the space is vacant. Leases may include exclusivity clauses, to prevent this type of competition.
- Incompatible neighbors?
Is there another kind of business, or their customers, that could discourage your tenant’s customers from coming to their business? A daycare center owner might not want a liquor store or adult toy store next door. The lease should state the types of tenants allowed in the building or on the property.
- What’s your time frame?
How long should the term of the lease be? Most commercial leases run for several years with renewal options, so this is a big commitment by both parties. How confident are you that your tenant’s business will generate enough income to pay the lease and its other costs?
- Net or gross or percentage of sales?
With a net lease the tenant pays rent plus part of the property’s expenses (maintenance fees, insurance, and taxes). In a gross lease, the tenant pays just rent. If the tenant is a retail store, rent could also include a percentage of the sales generated in the space.
- Premises description
The space should be accurately described, including square footage and important amenities.
- Premises preparation
If either or both parties will perform work on the premises, the scope of that work should be included. The parties need to clearly understand who will do what. If this is explained in exhibits attached to the lease, the information shouldn’t conflict with the lease terms. If one party needs permission by the other to do work, include deadlines so the process moves along. Consequences should be spelled out if deadlines are missed.
- Allowed uses/Use restrictions
What will you allow your tenant to do? What do you want them not to do (like compete with another tenant)? What are the penalties/remedies in case a tenant breaches these limitations?
- Exit strategy
A tenant may want to end the lease early if the business is unsuccessful. You should want to end a lease early if a tenant doesn’t comply with the lease terms. If you allow a tenant to leave by subletting the space, you should have the final say over who the new tenant will be and the conditions under which they occupy the space.
- Default provisions
How much can you tolerate before evicting a tenant? You should spell out when a rent payment is late and the consequences. Default provisions should also include any other fees or costs the tenant is obligated to pay. There should be a process by which you give notice of a default and the tenant has an opportunity to resolve the problem.
Commercial Lease Review
You may have standard lease provisions and language you use, yet it is good to have an attorney perform a commercial lease review periodically. The law changes, so your lease may need to adapt. We may suggest language that could strengthen your rights and protections. There may be issues or provisions that you’ve overlooked. If a tenant wants something out of the ordinary in the lease, we can help with that, too.
Hiring a Lawyer to Review a Commercial Lease Agreement Could be the Ounce of Prevention Worth a Pound of Cure
You may have taken a lease agreement off the internet and used it to save money. It may be poorly written, or won’t protect your interests; important parts of it may not be enforceable under Maryland law. The problems it may cause could be far, far more costly than the money you thought you might save by not using our services.
We help our clients avoid expensive mistakes, like using poorly drafted or unenforceable lease agreements. We understand expensive legal representation is something most landlords and business owners can’t accept. That’s why our fees to have a lawyer review a commercial lease agreement are reasonable.
If you have questions about leases or need help with a commercial lease dispute, contact Lusk Law, LLC today. We assist clients in Frederick, Carroll, Washington, Montgomery, Howard, Anne Arundel and Baltimore Counties and Baltimore City, and they trust us with several types of legal matters. Give us a call at (443) 535-9715 to schedule an appointment.
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