Commercial leases are complex documents that can be tedious to comb through; however, skimming over the clauses can be a costly mistake. Landlords often place language that restricts tenants' rights or passes along unnecessary or excessive costs, so it's vital that you carefully read the entire document and have an attorney peruse it. To help you get started scouring your lease for potential "gotchas," here are seven things that you should look for:
1. Capital Expenditures
Who is responsible for the covering the costs of a large, one-time expense, such as replacing a roof or making major repairs to a parking lot? While it is reasonable for landlords to divide some of the costs between tenants over an extended period of time, you don't want to end up being assessed a huge single fee for an expensive project.
2. Subordination, Non-Disturbance and Attornment
This type of clause, known commonly as SNDA, should be included in any commercial lease. In simple terms, it ensures that if the building enters foreclosure because your landlord defaults on a loan, you will be allowed to remain in the building. The language will protect you from having to suddenly relocate due to no fault of your own.
3. Early Termination
Be on the lookout for a clause that gives the landlord the right to terminate your lease early for any reason. While you may trust the landlord not to suddenly force you out of your space, if such a clause is in the document, you will have a difficult time fighting back in the event that it occurs.
4. Rent Increase Rates
It's normal for landlords to increase the rent at the end of every year; however, you should make sure that there are limits to how much the rent can be raised at once. Also, be sure that the lease clearly spells out how rent increases are calculated to ensure that a fair system is in place.
5. Personal Liability
Landlords may insert language that makes business owners or even the officers that sign the lease personally responsible for the debt. If the worst should happen and your company is unable to pay the rent due to financial hardships, the landlord can then sue these individuals personally to try and recoup the money. This could put personal savings and assets on the line.
6. Restrictions on Subleasing
Subleasing clauses allow tenants to rent out all or part of their space to another party if they find themselves no longer able to use the square footage. To future-proof your lease, make sure that the agreement contains provisions for subleasing and does not place severe limitations on your ability to sublease.
7. Required Improvements
Your lease should clearly spell out who is responsible for covering the costs of making improvements to the building that are required by law. If your landlord is forced to rewire to comply with safety codes, revamp the building to comply with Americans with Disabilities Act requirements or any other code or law, you should not be expected to pay a large sum of money to cover those costs.
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