A commercial lease represents a significant commitment for your business. Commercial leases often are not subject to the same consumer protection laws as residential ones, so it is important to understand exactly what you are committing to and to negotiate the best possible terms. Before you sign such an agreement, there are several clauses you need to thoroughly review, understand and negotiate.
Exclusivity
The location of your business is important, but so is the limitation on your competition. The commercial lease should guarantee that the landlord will not lease space to a competitive business in the building or on the property. What this means will depend on the nature of your business. For example, some buildings are occupied by medical practices. In this situation, you don’t want a lease that will restrict renting to other physicians, but you do want to be the only practice of your specialty in the building.
Radius Clause
Landlords may want a similar agreement that protects their own business. Specifically, the landlord may want a radius clause that prohibits you from opening another store close to the leased property. They want to keep business flowing into their property and not diverted to another location.
CAM
Tenants often pay a fee for common area maintenance (CAM), but how that fee is apportioned is important. Tenants want CAM charges based on the percentage of the total space in the building, not the total leased space. When it’s apportioned on the total space, Tenants pay a fee based on your leased square footage. If the CAM fee is apportioned on leased space, you are paying more to cover the unleased units.
SNDA
Many landlords have a mortgage and if you will be considered a major tenant of the commercial property, you may be required to sign a Subordination, Non-Disclosure and Attornment Agreement (SNDA). This document protects the mortgage holder by stating that their loan is superior to the lease and that you will recognize them as the landlord if there is a default on the mortgage. Make sure that your lease gives you the right to negotiate and execute the SDNA, and have it reviewed by an attorney before signing.
Compliance
Hire a licensed architect or engineer to assure that the building complies with the Americans with Disability Act (ADA) and environmental regulations, such as air quality. If problems are found, you must notify the landlord who is responsible for correcting these issues, but may want you to share the cost. If you have not completed this review prior to signing the contract, you could be made solely responsible for the expense of bringing your rented space up to regulatory standards, depending on the lease terms.
These are just a few of the critical terms in a commercial lease. LS represents commercial landlords and tenants. Feel free to contact us about your non-residential lease questions and concerns!