Attorney Joseph Zoppo Highlights 12 CONSIDERATIONS for Negotiating a Commercial Lease
The extent to which a tenant can favorably negotiate a commercial lease with a landlord boils down to relative bargaining power. However, even in situations where tenants have the upper hand — which, at the moment, often pertains to leases that in retail properties and units in strip malls and plazas — it’s critically important to be educated and prepared.
According to attorney Joseph Zoppo, here are the 12 issues to consider when negotiating a commercial lease:
1. Don’t sign anything until you read and understand it, or have the contents explained to you by an experienced attorney. Some landlords casually slide a lease across the table as if it’s a relatively unimportant document — when the opposite is the case (to be fair, some landlords do this innocently and have no malicious intent). Adds Joseph Zoppo: “Regardless of the landlord’s motive, your signature is likely to conclusively confirm that you read and understood the document.”
2. Keep in mind that if a property is sold or foreclosed down the road, then you’ll be dealing with another landlord who might want to do something different. Given the length, complexity and typical one-sidedness of commercial leases, a technical default could open the door to eviction.
3. Subordination should be subject to you receiving an agreement that your tenancy will not be disturbed by a foreclosing mortgagee or a new owner.
4. Negotiate business terms through a non-binding letter of intent (LOI). However, you need to be very careful here. While stated as “non-binding”, if you attempt to renegotiate terms that are unambiguous in the executed LOI, it could be viewed as evidence of bad faith — or worse, enforce-ability to renege on these terms in the Lease.
5. Ensure sure that the draft lease matches the terms in the LOI, and that the Lease includes specific details regarding who is responsible for repairs to roofs, floors, heating and cooling. Assignment and subletting should be dealt with as well, along with the length of the term, the premises (square footage, etc.).
6. Pay careful attention to the terms of renewal and ensure that the mechanics for notifying the landlord regarding a renewal or extension are clear. There should also be specific instructions regarding when notices are required, where they should be sent, to whom they should be sent, and how they should be sent (e.g. registered mail). Adds Joseph Zoppo: “Once you confirm all of these details, keep the lease safe and handy so you can refer to it as needed. Don’t just stick it in a drawer and forget about it!”
7. If the lease includes a build out, ensure that it is specific along with utilities; especially if an HVAC system needs to be installed, or is old and becomes your responsibility for repair and maintenance under the lease.
8. Watch out for clauses that give the landlord the right to relocate you, which would no doubt negatively impact your business operations.
9. Confirm in advance that the insurance the landlord wants is acceptable with your agent and will not oblige you to spend more than you can afford. Adds Joseph Zoppo: “Also watch out for a waiver of rights to sue the landlord.”
10. Ensure that parking is dealt with if the property is in a retail environment, or if peak hours are an issue. Also be clear on the landlord’s right to future development, which could create major parking problems for your staff and customers.
11. Clearly understand any provisions related to “holding over” (the claim by the Landlord that the tenant did not vacate at the end of the term of the lease. Adds Joseph Zoppo: “Holding over can result in double rent charged for the holdover period.”
12. Look carefully at all default provisions and avoid any that permit the landlord to conduct a self-help eviction (i.e. locking a tenant out vs. judicial intervention and court proceedings). Also be clear on the types of damages that the landlord may collect and ensure there is an explicit requirement for the landlord to mitigate damages.
13. Get two original leases: one executed for the tenant, and one for the landlord.
Concludes Joseph Zoppo: “These considerations are not an exhaustive list, but they will help tenants avoid some of the most common and costly pitfalls I have seen. Since landlords typically know much more about the ins and outs of commercial leases than tenants do, hiring an attorney is strongly advised for tenants.”
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