Signing a commercial lease is a big step for your business, whether you’re opening a cozy coffee shop or expanding your office space. But leases are packed with legal jargon that can feel like a foreign language. Don’t worry—we’ve got you covered with this easy-to-follow guide to reviewing a commercial lease. Think of it as your roadmap to avoiding surprises and working toward a deal that works for you.
Below, we break down some of the key elements of a commercial lease in plain English, so you can navigate the process. Let’s dive in!
- Get the Basics Right
Before you sign anything, double-check the foundational details. A small mistake here could lead to big headaches later.
- Who’s Involved? Ensure the landlord and tenant names are correct. If your business is an LLC, make sure it’s listed properly.
- Is This the Right Space? Verify the address, unit number, and square footage match the space you toured. A mix-up could mean leasing the wrong spot!
- How Long Are You Committing? Check the lease start and end dates, plus any options to renew. Know your timeline upfront.
- What Can You Do Here? Confirm the lease allows your business type (e.g., retail, office, or warehouse). You don’t want to be stuck with a space you can’t use.
- Crunch the Numbers
Money matters, and commercial leases can hide costs that sneak up on you. Here’s what to watch for:
- How Much Is Rent? Confirm the monthly base rent and when it’s due. No surprises, please!
- Will Rent Go Up? Look for annual increases, like a fixed percentage or one tied to inflation (CPI). Plan your budget accordingly.
- What Else Are You Paying For? Check who covers utilities, property taxes, insurance, and maintenance (aka CAM fees). These can add up fast.
- Security Deposit Details Know the amount, how you get it back.
- Late Payment Penalties Understand the fees for late rent so you can avoid them.
- Who Fixes What?
Maintenance can be a gray area in leases. Clarify who’s responsible for what to avoid disputes.
- Landlord’s Job Confirm what they handle, like the roof, HVAC, or exterior upkeep.
- Your Job Know what you’re expected to maintain, like interior repairs or equipment.
- Want to Renovate? Check if you need landlord approval for changes and who pays for them.
- Understand Your Lease Type
Not all leases are created equal. The type of lease affects your costs, so make sure you know which one you’re signing.
- Gross Lease The landlord covers most expenses, like taxes and maintenance. Verify what’s included.
- Net Lease You pay extra costs, like taxes, insurance, and upkeep. A “triple net” lease means you’re on the hook for all three.
- Percentage Lease Your rent includes a cut of your sales. Understand how it’s calculated to avoid overpaying.
- Know Your Exit Strategy
Life happens, and you might need to extend or end your lease. Here’s what to check:
- Can You Stay Longer? Look at renewal terms, like notice periods and new rent rates.
- Need to Leave Early? Check the conditions and penalties for breaking the lease.
- What Counts as “Default”? Understand what could put you in hot water, like missing rent, and the landlord’s remedies.
- Insurance: Don’t Skimp
Leases often require specific insurance coverage to protect both you and the landlord. Here’s the breakdown:
- What Insurance Do You Need? Look for required types, like general liability or property insurance.
- How Much Coverage? Check minimum limits, like $1M per incident. Make sure you can meet them.
- Who’s Named? Verify if the landlord needs to be listed as an additional insured.
- Proof and Updates Confirm how you’ll show proof of insurance and handle renewals.
- Deductibles and Cancellations Know acceptable deductible amounts and if you need to notify the landlord before canceling a policy.
- Common Areas: What’s Shared?
Common areas like parking lots or lobbies can make or break your business’s vibe. Here’s what to review:
- What’s Included? Confirm which areas are shared, like hallways or restrooms.
- Can You Use Them? Check your access rights and any restrictions, like hours or exclusivity.
- Who Maintains Them? See who handles upkeep and how costs (CAM fees) are split.
- Can They Change? Understand if the landlord can modify common areas and how it might affect you.
- Recording a Memorandum of Lease
This is a fancy way of saying you might publicly file a notice of your lease. It’s not always required, but here’s what to know:
- Is It Allowed? Check if you can or must file a memorandum with the local government.
- Why Do It? It protects your rights, especially if the property is sold.
- Who Handles It? Confirm who prepares and files it, and who pays the fees.
- SNDA: The Landlord’s Mortgage Matters
If your landlord has a loan on the property, an SNDA agreement could affect your lease. Here’s the scoop:
- Subordination Your lease might take a backseat to the landlord’s mortgage. Check if this applies.
- Attornment You may need to accept a new landlord (like a bank) if the property is foreclosed.
- Non-Disturbance Ensure your lease stays intact if the landlord defaults, as long as you follow the rules.
- Know Your Space Inside and Out
The lease should clearly define your space to avoid confusion. Here’s what to confirm:
- Legal Description Ensure it includes an accurate property description.
- Square Footage Verify rentable and usable space, and how it’s measured.
- Boundaries Check that walls, floors, and ceilings are clearly defined.
- Extras Confirm if shared spaces like storage or loading docks are included.
- Protect Your Business’s Edge
Your lease should support your business’s unique needs. Look for these clauses:
- No Competitors An exclusivity clause can prevent rival businesses from moving in nearby.
- Signage Confirm you can put up signs and any rules about size or placement.
- Subleasing Check if you can sublease or assign the lease if your plans change.
- Customize Your Space
Need to make the space your own? Review these details:
- Renovation Budget Does the landlord offer an allowance for improvements, or are you footing the bill?
- Space Condition Is the space delivered “as-is” or move-in ready?
- Deadlines Confirm timelines for renovations and when you can start operating.
- Dot the Legal I’s
These legal bits might seem boring, but they’re crucial:
- Which Laws Apply? Confirm the state or country laws governing the lease.
- Dispute Process Check if disputes go to mediation, arbitration, or court.
- Unforeseen Events Look for a “force majeure” clause to cover things like natural disasters.
- Guarantees See if you need to personally guarantee the lease.
- Seal the Deal with Confidence
You’re almost there! Before you sign, take these final steps:
- Get Expert Eyes Have a lawyer review the lease to catch any red flags.
- Negotiate Smart Identify terms to tweak, like rent or repair responsibilities.
- Sign It Right Ensure all parties sign and date the lease properly.
Ready to Sign Your Lease?
Reviewing a commercial lease doesn’t have to be overwhelming. With this checklist, you’re equipped to spot potential issues and make informed decisions. But let’s be real—leases can still be tricky. That’s where we come in.
At Joseph & Joseph & Hanna, our experienced attorneys can guide you through every step, from reviewing terms to negotiating a better deal. Protect your business and lease with confidence—reach out today!