reviewing a lease

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Reviewing a Commercial Lease

Monday, October 29th, 2018

When reviewing a commercial lease on behalf of a business tenant client, my goal is twofold: to obtain the most favorable terms possible for my client in the short term, while also protecting the client’s long term interests by limiting risk and personal exposure in the event of an unforeseen event that hurts or derails the business.

These are some of the issues I look to in my review:

  1. Make sure all lease terms mirror the terms found in the Letter of Intent executed by my client and the landlord.
  2. Attempt to obtain an abatement of rent for a period of a minimum of 60 days, to as much as 180 days if possible. Regardless of the rent abatement, at minimum we also want to make sure that the rent commencement date, which is the first date rent is due, is pushed far enough out to make sure we are open and operating at that time.
  3. Attempt to obtain tenant improvement money, which is money paid by the landlord to my tenant client and which the tenant must use to build out and renovate the premises. The amount of any TI money can fluctuate dramatically depending on how much work the space needs, and the business of the tenant.
  4. Understand whether we are dealing with a gross (“all-in”) lease where the tenant makes one monthly payment including everything due, or a triple net lease (“NNN”) where rent and CAM fees and taxes and insurance are broken out separately, or a hybrid of the two? Oftentimes a client can be confused about what the monthly payments actually are and not understand terms like additional rent, operating costs, and CAM fees.
  5. What about the HVAC unit, which in many instances can be a costly repair or replacement in the event the tenant takes on the responsibility to maintain and replace the HVAC if it breaks down. I recommend an inspection of the HVAC prior to signing the lease, as well as some warranty period where the landlord guarantees the operation of the HVAC.
  6. Is the tenant free to sublease a portion of the premises without landlord interference?
  7. Is there a liquidated damages clause in the event the lease is terminated early? This would mean that the tenant is on the hook for the entire remaining term for rent and all other expenses due and owing in the event of default.
  8. If this is a retail establishment, does my client tenant have exclusivity? In other words, is the landlord prohibited from permitting the operation of another wings place in the same plaza that my client who sells wings is in?
  9. Finally, there is most likely a personal guaranty.  Do spouses and even silent partners have to sign it? Is there a cap on it or is it unlimited?  I normally try to negotiate some type of cap on the guaranty.  Six months to one year’s worth of rent is oftentimes a manageable “out” for a tenant looking to get out from under a lease for a dying business.