Common Commercial Lease Oversights By Tenants

Overlooking a few key terms in a commercial lease can cost any business significant money or headaches.  Here are 3 key provisions that every commercial tenant should review closely before signing on the dotted line:

  1. Understand what constitutes “Rent“- Many inexperienced tenants overlook the fact that “Rent” is more than just the negotiated dollar amount per square foot. In many cases it also includes the Tenant’s share of the Landlord’s operating/ownership expenses of the Property such as snow/ice removal, repairs, maintenance, security, taxes, insurance, management fees—and the list goes on.  Make sure you understand the true cost of your “Rent”;
  2. Tenant Exclusive– What would happen to your little coffee shop if your Landlord rented space two doors down to Starbucks?  There is a good chance your business would suffer.  In certain circumstances, a Tenant should attempt to negotiate an exclusive use provision in the Lease to minimize the likelihood that business will be taken away by a competitor. 
  3. Assignment of Lease– Individuals often fail to plan ahead for when they want to sell their business in order to retire. The Assignment provisions of a commercial lease may make it very difficult for a tenant to sell their business and move on.  In most leases, the Landlord has approval rights (sometimes sole discretion) in determining whether or not to permit an assignment of the Lease.  And, even if the Landlord permits the assignment, often times the landlord still wants the original tenant to remain liable for the obligations under the Lease.  The Assignment clause should not be overlooked…think about your future plans and negotiate with the Landlord to make it easier for you to assign the lease should you exit your business.

These are just a couple of key terms that often get glossed over by commercial tenants.

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