Business Property Leases: 7 Tips for Getting Them Right

“At some time in the life of their business, most business owners will find occasion to lease commercial space. While owning business real estate can be desirable, many businesses cannot afford a significant cash outlay, particularly at the development stage. For those contemplating a new lease or lease extension for your business … you should be well-equipped to understand common lease terms, and to be sure they are addressed appropriately in your lease.” (Commercial Lease Negotiations by Stephen Minnich)

When you’re running a business, dealing with property leases can be an unfamiliar challenge. To help cut through the confusion and negotiate a lease on your own terms, here are seven tips from real estate lawyers on JD Supra:

1.Always give yourself an out…

“In good times and in not so good times, a well drafted and negotiated commercial lease will contain various exit strategies available to the landlord and tenant. These strategies will come in handy in situations where a tenant’s business is booming causing it to grow out of its current space (good times) or where the space is too big or expensive for the tenant to continue because business has dropped off considerably (not so good times).” (The Need for Exit Strategies in Your Commercial Lease by Timothy McKeown)

2.Plan for the unexpected. And put it in writing…

“Occurrences defined as constituting force majeure events will excuse lease parties for non-performance, or delay performance, of their obligations under the lease. The party with the most performance obligations will want an expansive definition of force majeure events. In many cases, the determination of whether an event of default has occurred may turn on whether or not the cause for non-performance is within the definition of a force majeure event as set forth in the lease.” (Lease Provisions that (“May”) Matter by Steve Watten)

3.Don’t play games with insurance coverage…

“Insurance clauses are one of the most intimidating and therefore neglected sets of provisions in a lease. There should be little gamesmanship in insurance provisions. Both landlord and tenants have an interest in drafting clear and accurate provisions to keep insurance costs low and to ensure that there is no overlapping coverage or gaps in coverage.” (10 Insurance Basics For Landlord and Tenants by Steve Watten)

4.Don’t shirk your responsibilities…

“The lease should state to what extent the tenant or landlord is responsible for loss and casualty with specific references to third parties and injuries caused by with the landlord or tenants negligence. For greater protection, indemnification and release clauses should be broad in scope contemplating claims relating to the premises but also planning for any number of other claims that could arise because of the leased premises.” (Commercial Lease Checklist by David Ganje)

5.It’s OK to bite off more than you can chew if you’ve laid the groundwork…

“Typically subleases require the tenant’s landlord to consent. The tenant’s lease should provide the specifics as to (i) when consent is required, (ii) if the prime landlord must be reasonable in its decision, and (iii) the procedures for requesting the consent. In addition, the lease may let the landlord take back (recapture) the proposed sublease space, instead of letting the tenant sublease the space. If the landlord recaptures, then the tenant is relieved from rent for the space the landlord takes back.” (So you Say You’re Subleasing by Bruce Rosen)

6.Think you’ll like the place? Don’t let it slip out from under you…

“A Right Of First Refusal requires that in the event the landlord receives an offer to lease … the property from a third party that the landlord is willing to accept, then the landlord must submit this offer to the tenant, who then has the right to lease or purchase the subject property on the same terms and conditions as set forth in the third party offer. Only if the offer is rejected by the tenant, or the tenant fails to timely respond to the offer, may the landlord then proceed with the lease of the property to the third party…” (Rights Of First Refusal in Commercial Leases from a Landlord’s Perspective by David F. Hanley, P.A.)

7.If your business goes south, you can probably get out of your lease…

“… in bankruptcy you will be required to either ‘reject’ the lease or ‘accept’ it. If you reject the lease then you will be required to turn over the property or leave the home/building, however you can do so without owing a single penny on the remainder of the lease as it will be discharged in your bankruptcy case. This can provide huge incentive for those owing large amounts on a lease that is no longer needed/wanted to file for bankruptcy.” (Leases and Bankruptcy by John Skiba)

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