What To Consider in Your Commercial Lease
When you find yourself staring at a complex commercial lease, and have already secured your tenant representation, it is important to consider retaining the services of an experienced commercial real estate attorney. A commercial real estate attorney can advise you on the specifics of your lease terms and make sure you have an informed view of your list prior to signing it. Following is a critical list of terms to watch out for:
- Relocation Clause. Something to consider while negotiating your office lease is to delete any relocation clauses. The worst thing that can happen to any tenant is being forced to close down business for any period of time. If you must take on a relocation clause be mindful of the costs associated with a move and make sure the landlord is responsible them.
- Pass Through Expenses. Most office leases are negotiated on a gross rent schedule, however, you may come across leases that have a net of operating expenses or utilities. In case of a NNN lease, be sure to get the right to audit the books at least once per year. Also, it never hurts to ask for a cap on controllable expenses like landlord management fees. Try to cap those at a fair market rate of 3-5% minimum.
- Right of First Refusal. Every lease should come with standard first right of refusal for contiguous space when it becomes available. Growing into space directly next door allows limited business disruption and associated costs.
- Sublease and Assignment. Having an exit strategy is important for every business owner. Assignment and subletting are two potential options for a business owner to be able to get out of their lease liability. Subletting allows you to play landlord and charge your rent to a new tenant. Assignment is the ability to assign your lease if you sell your business or are part of a buyout to another party.
- Other Important Items. Some other important items to keep in mind are around providing for subordination to third parties around Landlord liens, exclusion or capital improvements from compliance laws and pass-through expenses, provide for reasonable time limits in case of restoration after a loss and leave yourself the ability to terminate the lease if the landlord fails to provide you with essential services.
The idea behind a lease negotiation is to find common ground between a tenant and landlord by negotiating a fair and equitable contract between both parties. Following the advice of an experienced commercial agent is a great way to make your lease is a successful one.
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Phil Kubat is the Principal & Managing Broker of Transworld Commercial Real Estate, a commercial real estate brokerage firm in Colorado. Phil, a veteran in the Colorado commercial market, brings 15+ years of experience to his work with Transworld Commercial Real Estate (TCRE). TCRE serves as a strategic partner to clients for their commercial acquisition and disposition needs. Phil specializes in Leasing & Listing Sales Representation; Tenant & Buyer Representation; Corporate, Franchise & Franchisee Location Services; Co-Brokering with Franchise & National Firms; and Office, Industrial/Flex & Retail Site Selection.
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