Commercial Lease Review – Make Sure the Lease is Fair and a Good Investment for Your Business
We help businesses make sure that their commercial leases are fair and a good investment. Having an experienced real estate attorney carefully review your commercial lease could help save your business. For many businesses their rent is their single biggest fixed cost. But, many businesses don’t realize that their lease may have clauses that can drastically increase their monthly costs with little or no warning.
You need to make sure your business isn’t hamstrung down the road by sudden increases in rent, fees, or maintenance costs. Because we have years of experience reviewing commercial leases and fighting with commercial landlords in court, we understand what to look for in a lease and how to avoid any traps.
Why Your Business Needs a Real Estate Attorney to Review a Commercial Lease
Commercial leases are long and complicated. The first time you ever read through a commercial lease it can feel like you are in a parallel universe. The words are clearly in English, but often the terms are so filled with jargon that entire sentences are incomprehensible.
Commercial leases are loaded with what attorneys call “terms of art”. These are phrases that have specific legal meanings that are often very different from the way the words are used in everyday language.
A real estate attorney is fluent in the language of commercial leases. When you have a real estate attorney review your commercial leases you are getting someone who speaks the language work through the complicated document. Even if you are an experienced businessperson, a real estate attorney will notice nuances in a lease agreement that you miss.
Because commercial leases are written by landlords they are give landlords advantages over tenants at every possible point. But, if you have a real estate attorney performing a commercial lease review you will at least know exactly what your are getting into and what risks you are facing. Often, landlords do not care about many of the issues that are going to be important to tenants. You may be able to renegotiate some key provisions to be more in your favor if you know what to look for and how to phrase your requests for changes.
Commercial leases are thick documents and most landlords use a standard lease for all tenants. But, often mistakes are made in the lease document and some of the “fill-in-the-blank” clauses have information from another tenant in them instead of your information. These errors could cause you significant problems should there ever be a dispute between you and the landlord in the future.
Having a real estate attorney review your commercial lease makes sure you understand all of the provisions of the lease, it helps you avoid any traps, it allows you to know what changes to request, and helps avoid any mistakes.
How Does a Commercial Lease Review Work?
While every real estate attorney will have a slightly different approach to a commercial lease review, the best attorneys all follow the same basic steps:
- Understand the business of the tenant
- Read through the lease looking for mistakes
- Evaluate the commercial lease for hidden fees
- Make sure the lease clauses are lawful
- Evaluate the lease agreement for fairness
- Flag any high risk clauses
- Make recommendations
Understand the business of the tenant
Before the attorney even begins reading the documents, they will want to know something about your business. Different types of businesses have different needs when it comes to a lease. A bakery and a CPA firm will have much different expectations about what the premises requirements are and how the lease should be structured.
Read through the lease looking for mistakes
A real estate attorney will carefully read every word of the lease looking for mistakes. Common mistakes include:
- Having the wrong entity name for the tenant
- Listing the wrong rent amount
- Having the wrong start date for the lease
- Clauses that are inconsistent with each other
Most of the time landlords or property management companies working for landlords want to streamline the lease process. They will use standard lease agreements, but sometimes typos creep into the document when changes are made or previous tenant information is not removed. You want to make sure your lease is as accurate as possible to avoid future issues.
Evaluate the commercial lease for hidden fees
Commercial lease agreements cover much more than your monthly rent. There may also be fees you are required to pay for the upkeep of common areas, you may be expected to contribute to property tax payments, and you may be assessed quarterly or annual maintenance fees. Often these fees are buried deep in the agreement and are often not talked about until it is time for the landlord to collect them.
Even worse, often leases allow landlords to raise these fees with little notice and without having the fee increased tied to a specific formula. A lease review will help you understand the full costs you are undertaking and may give you some leverage in requesting changes to the ways some fees are calculated.
Make sure lease clauses are lawful
You would be surprised by how often clauses that may not be legal or legally enforceable make their way into commercial leases. Often, these documents are used without change year after year and they do not always reflect the current state of contract and real estate law. Even if these clauses cannot be used against you, having them removed is an important risk mitigation strategy. It prevents having to waste resources down the road on a potential dispute and it shows the landlord that you are professional and will be proactive with protecting your rights. It sets the tone of the tenant-landlord relationship from the start.
Evaluate the lease clauses for fairness
You should expect the lease to favor the landlord. Often commercial lease agreements are so far slanted in the landlord’s favor that accepting the lease as written would be a business mistake because it puts too much risk on our shoulders.
It is critical that you know exactly what obligations you are undertaking before you commit your business to a commercial lease.
Flag any high-risk clauses
During a commercial lease review, a real estate attorney may find clauses that put your business in an unusually high-risk position. These clauses may be especially high-risk due to your business type, because of economic conditions, because the clauses are poorly worded, or some other reason. However, the attorney performing the review will flag these clauses to make sure that you understand how risky they are for your business or even for you personally.
One of the most valuable parts of the commercial lease review process is the recommendations the attorney will make. The recommendations will be personalized to your business, your circumstances, and the lease. The recommendations could range from sign the lease to request these changes to avoid dealing with this landlord.
Understanding Your Rights and Obligations Under the Lease
Commercial leases are different from residential leases in many critical areas. The law and the legal system typically is much more protective of residential tenants than it is of commercial tenants. As a commercial tenant you will not only be responsible for paying your rent each month, but you will most likely also be responsible for much of the standard maintenance issues of your space.
However, you will also typically have much more freedom to make changes to your space as a commercial tenant than you do as a residential tenant.
Most of the rights and obligations you have as a commercial tenant will not come from laws passed by the Florida legislature, or from ordinances passed by Orange County or the City of Orlando. Almost all of the rights and obligations your business has will be set forth in the lease. Your commercial lease becomes the law for your relationship with your landlord.
When you hire a real estate attorney to review your commercial lease you are engaging in risk mitigation and investing in the future of your business. Failure to understand your specific rights and obligations as spelled out on your lease agreement could lead to a rocky relationship with your landlord, or in the worst case, can even ruin your business.
You need to know what limits the lease puts on the landlord and what options you have should the landlord violate those limits. You also need to understand what you are promising to do and what actions the landlord may take should you fail to keep your promises.
Dangers of Signing the Lease Without an Attorney Review
No business wants to spend money they don’t have to. Many businesses are tempted to skip hiring an attorney to perform a comprehensive lease review and instead just review the lease in-house.
However, forgoing a formal legal commercial lease review comes with substantial risks. Leases are long, complex legal documents. Often, several different clauses work together to create as series of legal consequences that are not apparent by reading each clause in isolation.
Commercial leases are also not subject to consumer protections like other types of agreements are. This means that the law will let a business agree to unfair and oppressive terms that it would never recognize if applied to a residential tenant.
When you get the stage that you are ready to sign a lease, you have already invested significant time in finding the right space. You just want to sign the lease and get started setting it up so you can be open for business. You can’t make any money on a space while you are reviewing the lease. This can often create an incentive for you to not look closely enough at the lease.
If you fail to have an attorney review your commercial lease you are in danger of agreeing to terms that you didn’t fully understand. The financial commitments may be quickly be more than you can afford because you didn’t realize that the lease obligated you to much more than just the rent.
If there are later disputes with the landlord you may find that the lease you signed severely limits the landlord’s liability or your ability to contest the actions of the landlord. Failing to have a commercial lease reviewed is the classic example of trying to save a few pennies up front by putting the future of your business at risk. Having a real estate attorney perform a commercial lease review should be a standard part of your due diligence as business.
What Happens After the Commercial Lease Review?
After your attorney has completed a commercial lease review you will be left with several options. Your attorney will have given you a full report on the lease along with some recommendations. With this knowledge you can sign the leases as is. If you choose this, you have still benefited from the lease review because you are now making a fully informed decision and can have the peace of mind of knowing that there are no hidden traps.
You may choose to renegotiate some terms of the lease. Armed with the specific notes and recommendations of an attorney you will be in a stronger bargaining position.
You may choose to have your attorney renegotiate the lease terms. This helps free your time and helps ensure that you get a lease that is better suited to the needs of your business.
You may decide that the lease has too many problems and that the situation is too risky. In this case a lease review will have saved you from making a business move that exceeded your risk profile. Instead you will be able to find a lease that is a better fit for your business.
When it comes to having a commercial lease reviewed by an attorney there is no downside for your business. But, skipping this due diligence step could put the future of your business at risk.
How Walsh Banks Law Can Help You
We not only regularly review commercial leases, but we also help negotiate and draft them. Many commercial leases make it difficult for businesses to have the type of cost predictability they need to grow. Even worse, a bad commercial lease could leave you and your business on the hook for large, unsustainable rent increases, costs, and fees.
Our team has the knowledge and experience to help you avoid a bad commercial lease and to propose changes to an existing lease to try and prevent you from having to break the lease.
The lease for your premises may be the most important, and longest lasting, contract your business ever enters into. You deserve to have a team of commercial lease experts on your side helping you find the best lease terms possible.