Commercial leases are lengthy, complex documents, but you can't afford to simply skim them. Thoroughly reading your lease and having confusing clauses clarified is essential to ensuring that you get a fair deal. Here are some important clauses to look for:
1. Rent and Common Area Maintenance
These sections of the lease specify the rental rate for office space. Look out for the usable square footage figure, which tells you the size of the actual office that you will occupy as well as the rentable square footage, which includes a portion of the shared area in a building. The common area maintenance clause stipulates how much you will need to pay to cover the maintenance on these shared areas.
2. Leasehold Improvement Clause
In this area of the lease, you will find the details of what tenant improvements your landlord is willing to provide before you move into your space. You'll want to assess the tenant improvement allowance disclosed in this clause to ensure it is adequate for your build-out needs.
3. Subleasing and Assignment
If you're signing a long-term lease, the subleasing and assignment clause can help to protect your business in the future. This clause gives you the ability to lease out all or part of your space to another tenant (sublease) or to turn over the lease to another tenant and walk away (assignment).
4. Rent Escalations
This section of the lease tells you how often your rent will increase and how rent increases will be calculated. Methods of calculation vary greatly. You may have a stepped increase where your rent rate goes up a fixed amount periodically or the increase may be tied to real increases in landlord operating costs or to fluctuations in indices like the Consumer Price Index.
5. Termination and Renewal Clauses
Some leases will include an early termination clause that allows you to exit the lease at a certain point in the term in exchange for a fee. Renewal clauses are found in most leases and give you the right to renew your lease and remain in your space provided that you notify your landlord in the manner outlined in the clause.
6. Releases, Indemnities and Insurance
Commercial leases will describe who is liable for third-party claims made against your landlord when injuries and accidents occur in the building. While a lease may specify that your company is liable if the event was caused by you or your employees, it should not broadly put all liability onto your company.
7. Notice and Opportunity to Cure
This clause ensures that if you fall behind on your lease your landlord will give you notice that you are in default and provide you with a window of time in which to pay what is owed before you are evicted.
8. Compliance With Laws
It is normal for a lease to demand that tenants comply with all laws while occupying their office space; however, you should carefully read this clause to ensure that the responsibility for compliance with the Americans with Disabilities Act (ADA), building codes and environmental laws is not solely your responsibility. Many modifications to buildings that would be required to comply with these laws are capital improvements and should not be passed through entirely to your company.
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