Once you have negotiated the business terms of your lease, be it for a renewal or relocation, there are a number of items to address to help you with your legal terms negotiations. Below is the list of Top 10 tips I share with my clients. While this list should not replace having a qualified, experienced, real estate attorney review your lease document, it will give you and your attorney a good idea of the subtle ways a landlord may try to take advantage of his or her tenants. (Luckily, after reading this post, you will be armed to ensure you have a fair legal document.)
1. Business terms – Double check that the business terms agreed to in the Letter of Intent are the same as in the lease document.
2. Sublease clause – Reasonable consent should not be withheld by your landlord. Your landlord will ask for 100% of profits. A 50/50 split is fair. Seek to minimize notice to your landlord and response time from your landlord. Consent shall not be necessary for purchase, sale, or merger.
3. Hold-over clause – If you occupy your space beyond the lease expiration, your landlord will ask for a penalty of 200% of the then escalated rent. However, based on my 12 years of experience negotiating commercial leases, I assure you that 150% is the fair market amount.
4. Renewal Clause – Your landlord may ask for automatic renewal if you don’t give notice. This is not acceptable. It’s nice to have ongoing rights to your own space. Negotiate the rate when possible as it will still be negotiable at that time. If the renewal rate is above market, you can still negotiate it down.
5. Work letter – This should be studied closely to make sure everything matches up to what your landlord said he was going to deliver. If there is an allowance, base building items (ie. electricity and HVAC stubbed to premises, dropped ceilings, dry wall) should be taken care of by the landlord. If the landlord is handling construction, make sure he or she is liable if the work isn’t completed on time.
6. Right to Terminate – This can be a great source of leverage to restructure your lease regardless of how the market has changed since execution of the lease.
7. Surrender of Premises – Your space shall be returned in “broom-clean” condition, nothing more. Your landlord may ask for the space to be returned to “white box.” That is unacceptable.
8. Taxes and Operating Expenses – It’s important to make sure capital improvements are not passed along to you, the tenant, through operating expenses. If you’re going to sign a gross lease, there should be a Base Year.
9. Insurance requirement – Make certain you have a qualified insurance broker review all coverage requirements.
10. Damage or Destruction by Casualty – Seek to minimize the time in which your lease can be terminated, and seek to maximize the remedies available to you as a tenant.
Unfortunately, in all types of business, there are people whose goal is to make as much profit as possible, as opposed to offering a solution to suit all parties involved. The 10 tips listed above should help ensure that you end up with a lease negotiation that leaves you looking forward to staying in your existing space or moving into a new space.