Major Points to Consider in a Commercial Lease: Landlord’s Perspective
From the landlord’s perspective, a tightly drafted lease can mean the difference between breaking even on a problem tenant or being forced to throw good money after bad just to force the tenant to vacate the premises and start from scratch. Lease provisions can be carefully crafted to avoid this situation and put the landlord in a superior position without being so unreasonable as to be unenforceable. Since commercial tenants do not have the same statutory protections otherwise afforded to residential tenants, landlords enjoy more freedom to include more landlord-friendly provisions in their lease agreements, and even a basic commercial lease should contain numerous provisions to protect the landlord’s interest. The examples that follow are just a few of the major areas where many “form” lease agreements leave the landlord unnecessarily exposed.
Transfer: The tenant should agree to continue paying rent if the building is sold, converted to condominium ownership, etc. Whenever the landlord wants to leverage or refinance the property, the tenant should also be obligated to subordinate their lease to the new mortgage.
Hazardous Materials: The tenant should be expressly obligated to maintain the premises in a condition that is free from toxic and hazardous waste materials, pollutants and contaminants. Such materials may include less obvious things such as barrels of gasoline.
Repairs: Florida law contains a process for notice to the landlord and withholding of rent while the premises are in such disrepair that they are wholly untenantable. Every landlord should trump this tenant friendly statute by including a more favorable (yet still enforceable) notice process in their lease agreement.
Proper Execution: A lease for a term longer than one (1) year must be in writing and properly witnessed.
Percentage Rent: Tenants paying any part of their rent calculated as a percentage of sales should be subject to inspection and audit by an accountant of the landlord’s choosing. “Sales” must also be carefully defined.
Assignment: Leases should be non-assignable by the tenant and non-assignment clauses must be carefully worded to cover any change of control of a corporate tenant.
Limited Use: Landlords should define specifically what the tenant will use the space for and prohibit any other use. Be careful, however, not to imply that you are guaranteeing the suitability of the premises for any particular use.
Attachments: A good lease agreement will have several attachments, such as a diagram of the premises (both interior and in relation to the entire property), rules and regulations (especially in a shopping center or office building), a personal guarantee, and a plan of improvements, if any, detailing who will do what by when, how it will be paid for, and what happens if it’s not ready on time.
Waiver of Jury Trial: The average juror is much more likely to be a tenant than a landlord, and thus more likely to sympathize with the tenant. Having the tenant waive the right to a trial by jury forces a judge to decide the matter based solely on the law, the lease, and the circumstances.