The following is a list of the top ten commercial lease clauses about which a tenant should be most concerned. Here is my top 10 list for the most negotiated clauses:
1) Rent – When does it commence; what is the base rent; will there be percentage rent.
2) CAM – Stands for “Common Area Maintenance Charges” – this is the additional rent that includes all of the costs that the Landlord expends for maintaining the shopping center or office building. The costs are apportioned to each tenant on a pro rata basis based on square footage (see my prior blog post on Common Area Maintenance charges). Consider a cap on charges and exclusions from items included in CAM charges.
3) Personal Guaranty – is a personal guaranty required, if so, can it be limited in time or amount.
4) Term – When does the lease commence – does it commence when the lease is signed, when the keys are turned over to the tenant, when the tenant opens for business or some time after that.
5) Assignment & Subletting – What are tenant’s rights to assign or sublet the premises, what are Landlord’s requirements prior to consent for assignment or subletting, if a franchise, what are the franchisor’s requirements upon a default by tenant, will the tenant and guarantor be released upon assignment.
6) Use – Critical to the functioning of the business, is the use clause broad enough to cover everything that a tenant intends to do at the premises both currently and in the future, does the use conflict with any other tenant’s exclusive use rights, can tenant obtain an exclusive right to its use.
7) Signs – Will tenant’s sign requirements be approved by the Landlord, will the sign be approved by the local governmental authority, what happens if it isn’t.
8) Permits – What are tenant’s options if tenant is unable to obtain the necessary governmental permits in a certain reasonable period of time.
9) Default – will tenant be given appropriate notice of a default and an ample opportunity to remedy that default, will the notice and opportunity to remedy a default be different for monetary default versus non-monetary default, what if the non-monetary default cannot be cured in that timeframe.
10) Remedies – what are Landlord’s rights on the occurrence of a default, how can tenant soften some of those remedies, is a personal guaranty required, can it be limited. These are just 10 of the many issues that a commercial lease tenant will face when entering into a lease for the business. Please contact us so we can assist you in negotiating these and other important provisions of the commercial lease for your business.
