When entering into a commercial lease, negotiations between a tenant and landlord can become complicated. As a business owner, you want the maximum number of services and accommodations for the lowest and most favorable rent and leasing terms. Of course, the landlord will be looking terms that favor the building owner.
To obtain favorable terms in a commercial office lease, you should consider some important points during negotiations. It is important to find a commercial lease company who can help you with these concerns and help negotiate favorable lease provisions and avoid future problems.
Rent Review Method for Increases
Yearly rent increases are usually calculated according to a fixed rate, percentage, or an amount based on the Consumer Price Index. Before you sign a commercial lease, make sure the method that will be used to determine how the landlord can raise the rent each year is documented. Use this information to negotiate rental rates at renewal time.
Mortgagee’s Lease Consent
When property is mortgaged, it is essential to obtain a copy of the mortgagee’s consent to the commercial office lease before signing anything. Failure to do so could result in significant problems should the landlord default on the mortgage and no binding agreement exists between you, the tenant, and the mortgagee.
Expected Tenant Costs
Commercial lease companies advise that tenants are usually responsible for things such as security deposits, utility charges, insurance and land taxes. You may also be liable for certain legal costs as well as equipment and building repair costs. Obtaining the mortgagee's consent and other costs may also be your obligation.
Make sure all this is spelled out in the contract so there is no question what you are expected to pay for and what is the landlord’s responsibility.
Demolition, Redevelopment and Relocation Provisions
Demolition, redevelopment, and relocation clauses in a commercial lease give the landlord the ability to terminate the contract with written notice at any time so work can be done on the building. Proceed with caution if you are asked to sign a contract that includes one of these clauses as you may possibility have to relocate your business. Considering the costs involved in any relocation, the risk may outweigh any benefits a property has to offer.
Securities Interest Register
Since 2012, the Personal Property Securities Act (PPSA) has provided a means for tenants and landlords to register security payments to ensure they are recorded in the landlord’s interest. Failure to record payments in this manner could be problematic for the landlord if you were to default on the lease since other creditors can claim certain unregistered securities.
While doing this will not have any effect on you as a tenant, registering security interests following the PPSA is a plus for the landlord and may let you obtain other considerations during negotiations.
Fit-Outs and Improvements
When planning building improvements as part of a commercial office lease, always confirm that how you intend to use the building is permitted for the premises and if any special permits are required to do the work. Provide the landlord with a copy of your improvement plans ahead of time and ensure that all applicable clauses allowing these improvements are included in the lease.
Final Condition Report
The final step recommended by commercial lease companies is for both you and your landlord to prepare a joint condition report before signing the lease. This report documents the following:
- All details about the current condition of the building.
- Improvements to be made.
- Due diligence.
- Agreements about repairs and replacements.
It should also include photographs of the property and any "make good" obligations expected of the tenant upon termination of the lease.
Protecting your interests as a tenant and negotiating favorable commercial office lease terms requires careful examination of the property and attention to easily overlooked details. Use the checklist above to help ensure you enter into a desirable commercial lease while avoiding any future problems. An experienced agent or tenant representative from an experienced commercial lease company can help you with these details so you can achieve your leasing goals!