Leasing commercial property may be one of the first steps you take as a business owner. Whether you are a property owner or tenant, you want to be sure that the commercial lease agreement includes everything necessary to protect you throughout the duration of your lease. A lease is an important document because it provides essential information that gives both parties details on the arrangement. A real estate attorney provides you with guidance and helps you draft or review a lease before you make it official.
Essential Items to Include in a Commercial Lease
- Identify Parties to the Lease: Make sure the lease properly identifies the parties of the lease. In some cases, the lease may be in the business name. If so, you will need to ensure that you understand who is responsible for payments. If an individual signs the lease, you need to know whether that person is personally responsible should the business default in their obligations.
- Lease Term: Identify the length of the lease including when it begins and ends. Many times, a commercial lease may include multiple years, which can be beneficial to both parties. Additionally, ensure that the lease provides for how the lease will be extended after the initial term. When the lease is for multiple years, it may include rental increases throughout the term.
- Rental Payments: The lease must include the amount of the rent and how and when rental payments are due. The lease may include a grace period and may impose a fee if rent is late. The fee may be a specific amount or a proportionate amount. Understand how, where, and to whom payments must be made. The lease will also provide details on the security deposit.
- Upkeep and Expenses: Commercial leases often require tenants to handle a portion or all of the upkeep or maintenance of the building. You must understand these additional expenses before you sign the lease. If the building is shared, there could be a monthly fee for common area costs, such as cleaning and maintenance. The lease should specify whether utilities are included and if so, which ones. If utilities aren’t included, the lease should require the tenant to put the utilities into their name.
Besides the basics, there are other items to consider in a commercial lease. Both parties need to be able to look to the lease for guidance on issues that could arise during tenancy.
- Personal Guarantee: In some cases, a landlord may require a personal guarantee for the lease. This could occur if the business is new, for example. A personal guarantee can include limitations that will make it more feasible for tenants to approve. Always know the total dollar amount you could be out of pocket if you default on the lease.
- Business Protection Clause: A tenant may want to include a business protection clause, particularly in situations with shared space. The business owner wants to make sure the landlord does not rent the adjacent spaces to similar businesses. Also, the tenant may want to have the ability to leave the lease if the landlord fails to keep adequate tenants in the property.
- Insurance Requirements: The lease needs to make clear that the tenant must have insurance, including business liability insurance. In addition, the lease may also require the tenant to have proper business licensing and inspections when necessary.
- Changes and Updates: Sometimes, a tenant needs to make some changes to accommodate their particular business. The lease should indicate how the changes are approved and what the tenant must do to ensure they are made correctly. Also, the lease should require the tenant to restore the space to its original condition before moving out.
Commercial leases can be complex and therefore, you need to be careful. Make sure you have your attorney draft a lease that covers your needs or review a lease presented to you before you sign. Keep in mind that a lease is a legal contract and both parties can negotiate the terms of the document prior to execution. To get help with commercial leases, contact Moen Sheehan Meyer, LTD. at (608) 784-8310 or by email.