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3 lease terms that commercial tenants may want to negotiate carefully

On Behalf of | Apr 26, 2024 | Business & Commercial Law

Signing a new commercial lease can be an exciting move for a business. The new lease might allow a company to expand or to directly sell products to customers. However, a lease is an executory contract that comes with substantial financial responsibilities for the commercial tenant.

It is therefore crucial for the protection of the business owner or executive committing to the lease to review the terms of the lease carefully and negotiate for appropriate concessions that limit the exposure of the business. Many commercial leases are boilerplate documents, but it is possible to make adjustments that benefit both the landlord and the tenant. For example, the following terms in commercial leases often require negotiation when a new prospective tenant wants to sign a commercial lease.

The duration of the lease

Commercial leases typically involve a multi-year commitment. Commercial landlords are far less likely than residential landlords to offer one-year or month-to-month leases. Instead, commercial leases often last for at least two years, sometimes far longer. New startups and businesses testing the waters as they expand may need to reduce a standard lease duration in case the facilities aren’t what the company requires in the long term.

The costs of and responsibility for maintenance

Base rent is only part of what a commercial tenant pays for their space. Landlords typically also pass along maintenance costs. Depending on the type of rental space, a tenant may be responsible for most or all of the maintenance responsibilities themselves or may have to pay hundreds of dollars a month in special maintenance fees. Negotiating the degree of maintenance responsibility and the costs associated with maintenance and repairs can help commercial tenants lock in affordable rates and terms that they can actually adhere to throughout the lease.

Rules for lease termination

There are several ways for a business to address a commercial lease when the company fails or begins restructuring. Some commercial tenants seek to assign their lease to another party. They locate and negotiate with a new tenant so that their landlord theoretically does not lose out on any monthly rental payments. Leases can either explicitly allow or prohibit assignment to another business. Tenants might also ask to add force majeure clauses to their contracts. A force majeure clause could allow a tenant to terminate the lease or justify the failure to pay rent based on unpredictable and uncontrollable economic factors.

Given that commercial leases are so expensive and last for so long, including the appropriate provisions in an initial lease agreement is crucial for the protection of the tenant signing it. Taking the time to negotiate favorable terms can reduce the risk inherent in signing a new commercial lease as well.