Understanding the Mechanics of Your Commercial Lease

Daniel A. Kaskel

Rent is typically a business's second largest expense following wages and a lease is often a five to ten year term. Therefore, your lease is probably one of the most significant contracts that you as a business owner will enter into. And it's probably one of the most costly ones, too. That’s why it's important to understand some of the mechanics of your commercial lease.  Commercial leases are often negotiated, and a reasonable landlord will consider modifications that benefit the tenant.  As a Florida Bar Board Certified Real Estate Attorney, with significant experience in commercial leasing, following are some considerations that I recommend people think about before signing a lease: Exit Strategy: What is your exit strategy? Can you terminate the lease early? And if so, under what circumstances?  Can you assign or sublease? The permitted use allowed in the lease is a function of what you can or can't do with respect to your exit strategy. Timing: What is the timing of the landlord or tenant construction/improvements? Responsibility: Who's paying for construction/improvements? How and when is the landlord dispersing any tenant improvement allowance? Code Changes: Who is responsible for required improvements to the property due to code changes? For instance, several years ago, the ADA changed, and every commercial space had to be modified, therefore you need to know who's responsible for paying and making those changes? CAM Expenses: How are operating expenses, often referred to as CAM (common area maintenance), determined? What's included and excluded in the component of CAM? What are your audit rights as a tenant to review and audit the way the landlord has assessed CAM?Future Alterations: What are your rights to make alterations and improvements to the property after the lease commences? This is particularly important for leases with longer terms and renewal options. Parking: An issue that I find a lot of tenants asked me about is parking and signage. To what extent do you have reserved parking and does any other tenant in the building have reserved parking? Signage: What are your signage rights and who's paying for your signage? Personal Guaranty: Is the lease personally guaranteed, and if so,...

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