Commercial Lease Agreements Explained
A commercial lease agreement is a legally binding document between a landlord and a tenant for a commercial or retail space intended for the purpose of conducting business. Depending on the area of the space, commercial properties vary in size and numerous types exist including mowing services, taxi and livery services, rental services (such as TV or movie rentals), home care services (like pet sitting, janitorial services and gardening), professional services (such as accounting, childcare and clinics) and personal services (like beauty salons, dry cleaners and fitness facilities).
Similar to residential leases , commercial leases outline the expectations and responsibilities of the individual or business leasing the property and the landlord. This includes rent, duration, termination of lease, rights of the landlord and tenant, renovations, alterations/modifications to the property, remedies in case of default, dispute resolution, taxes, utilities and other expenses. Specifics on operation, maintenance and repair of the unit and/or land may also be included in the lease. Both landlord and tenant must understand their obligations, limitations and liabilities as set forth in the lease agreement, and therefore it is best to contact an attorney specializing in commercial leases to ensure lease terms create a legally sound contract.
Important Provisions in Commercial Leases
The nature and content of relevant clauses in a commercial lease will vary depending on the type of business you run and the physical space required to run it. But there are some core commercial lease clauses that will be present in most agreements, and which should deserve your careful consideration:
Rent: The most basic clause in any lease agreement is the rent to be paid in exchange for the use of the property. Rent may include a base rent plus a percentage of sales, or it may be fixed over time. Note that sometimes, rent includes free rent periods. Any increases or concessions, such as rent-free months, scheduled rent increases, and full or partial reimbursement for rent during tenant improvements should be stated clearly.
Duration: The duration of the lease is another very basic but essential clause in a commercial lease. The length of the lease should be clearly spelled out in the main body of the lease or contained in a clause with an indefinite term. Note that an indefinite term may likely include some provision on the decision of either party to terminate the lease early. In addition to the main term of the lease, the clause governing the renewal and extension of the lease should be carefully considered.
Responsibilities: The responsibilities of landlords and tenants are another common, necessary base for all leases. Key areas for these responsibilities include maintenance, repairs, rent collection, property management, and utility payments. Any property taxes, or fee assessments should be spelled out in detail. Consider also if the lease subject requires alterations to the property, whether partially or fully.
Co-tenancy: Co-tenancy clauses manage the relative positions of you and your landlord in the case that another tenant does not fulfil its obligation to the landlord. In some cases, this may mean you must find another tenant to cover the absent tenant’s lease obligations, in exchange for some incentive.
Expansion: A key clause that allows for expansion means you’ll be able to expand the premises in the future without having to renegotiate the lease contract. This clause shouldn’t cost you any extra rent, but still provide you with a clear path for future growth.
The Function of a Commercial Lease Lawyer
When it comes to drafting and negotiating a commercial lease agreement, having a knowledgeable lawyer is essential. These professionals consider all parties’ needs, advocate on their clients’ behalf, and steer clients through risks and ambiguities. A commercial lease lawyer works with clients in many ways. Below are a few examples of the many legal services they provide:
Reviewing Drafted Agreements
Lease agreements can be lengthy, confusing, and have terms that don’t make sense. A commercial lease lawyer reviews agreements to ensure they are tailored to clients’ specific needs. With their knowledge and expertise, commercial lease lawyers make sure the documents include all the important terms necessary to protect clients and their businesses.
Helping Clients Understand the Terms
Many business owners aren’t familiar with the various terms and clauses in a commercial lease agreement. In some cases, they may not even understand what the impact of a clause could be. A commercial lease lawyer can explain and clarify what each term means and how it will affect the client and their business.
Advocating for Clients
Most business owners aren’t equipped to negotiate the terms of a lease agreement. Lack of experience and unfamiliarity with real estate law can leave them vulnerable. A commercial lease lawyer has the experience to negotiate on clients’ behalf. They’ll also consider the practical implications of the different terms of an agreement.
Steering Clients Away From Ambiguities
When terms in a commercial lease agreement are ambiguous, they can lead to serious misunderstandings. If there’s any confusion about a term—whether it’s the definition of services provided, the amount of rent being charged, or who’s responsible for certain acts—a commercial lease lawyer will work with clients to get the terms of the agreement spelled out.
Contracts govern critical aspects of businesses, which is why these documents must be thorough, accurate, and well worded. Avoid relying on commercial lease agreements that are unclear or full of gray areas. To protect one of your organization’s most vital resources—from office space to warehouses—seek assistance from an experienced commercial lease lawyer right away.
Negotiating a Lease
Negotiating Lease Negotiations
The process of negotiating a commercial lease agreement involves a series of back and forth communications between the tenant or its representative and the landlord or its representative. Such negotiations take time, and patience is usually required to reach a mutually agreeable lease. What you should not be is impatient and simply accept the terms offered to you by the landlord or his representative, because those terms are usually negotiable and you can almost always negotiate to a better position than you are initially given. In addition, the negotiations that are conducted with the landlord for a lease renewal can go a long way to the renewal process being painless.
A commercial lease agreement lawyer does many things, one of the most important being to obtain favorable terms for his client through negotiations. To do this, he must have a thorough knowledge of both the lease terms and the best practices for negotiation of a lease. Ideally, the process will begin before you even start looking for a commercial location, so you can best focus your search based on the strength of your negotiating position. You should have an attorney representing your business to stream line the process and help you realize the best possible deal for your new or renewed commercial lease.
Some of the common commercial lease negotiation strategies include:
The most common pitfalls for commercial lease negotiation include:
Getting help to navigate a commercial lease agreement is important to ensure that the deal is as favorable as possible for you and your business. If you are thinking about starting a new commercial lease, make sure you consult with a qualified commercial lease agreement lawyer who can help you understand the lease completely, and how to get the best deal possible for your new space.
Resolving Business Lease Disputes
Disputes can arise in commercial leases due to a number of factors, including non-payment of rent, failure to comply with lease terms, maintenance disagreements, and eviction proceedings. When these disputes threaten the integrity of your business operations, you must take action to protect your interests and the interests of your company stakeholders. In these scenarios, an experienced commercial lease agreement lawyer may be your best resource for efficiently and effectively resolving conflicts and finding a win-win solution.
To resolve such disputes, it may be necessary to engage mediation, litigation, and/or arbitration. In mediation, the commercial lease agreement lawyer will act as a neutral third party during negotiations between the landlord and tenant before the dispute becomes more serious. If the conflict cannot be resolved through mediation, the next step may involve either litigation or arbitration . Litigation is a process of filing a lawsuit in court and having a judge or jury decide on the appropriate outcome. Litigation in Arizona is governed by the Arizona Rules of Civil Procedure (known as "Arizona Rules").
In arbitration, a neutral third party (known as an "arbitrator") makes a binding and enforceable decision regarding the dispute that must be adhered to by both parties. Either of these methods may be utilized to resolve the conflict and allow business operations to continue as normal. An experienced commercial lease agreement lawyer may help you determine the best route for your particular situation.
For more information about how a commercial lease agreement lawyer may assist you and your business with commercial lease agreement disputes, please contact Scottsdale business lawyer Jared Allen Wright.
How to Find a Commercial Lease Lawyer
When selecting a commercial lease lawyer, several factors should be taken into account to ensure the right fit for your business. Experience is crucial; an attorney with a strong background in commercial leases will be able to provide valuable insights and avoid common pitfalls. Further, specialization is key—look for an attorney who specializes in commercial leases, as this will allow them to have a deeper understanding of the specific laws that apply and the from the various industry practices.
Reputation should also be taken into consideration when selecting a commercial lease lawyer. A reputable attorney will be well-respected within their community and have a track record of satisfied clients. Asking for referrals from colleagues or conducting online research can help identify a qualified legal professional.
Finally, consider the fees and billing structure of the attorney. While it’s important to select a qualified commercial lease lawyer, it’s also important to have a firm understanding of the fees and billing structures that will be applied.
How Much Does a Lease Agreement Lawyer Charge
Many landlords have retainer agreements from the outset that lays out the costs and fees associated with the services they provide over the course of the lease. In general, however, you might be looking at $1,700 to $2,500 on a retainer.
Without a retainer, costs can vary as well. So long as your attorney believes in your case, he/she will take it on a set fee or hourly basis. Hourly rates can be anywhere from $350 – $800 per hour depending on the firms billing policies, the location of the firm, the reputation of the firm and the expertise of the attorney. If your case ends up needing financing, that bill could mount quickly . Still, if you need to bring your grievance to court, it can be well worth the expense.
Assuming your attorney is not retained, the costs for hiring a lease lawyer are more manageable. Simple lease review, negotiation and consultation will end up costing in the range of $300 to $500, though that is only if there are no red flags that need to be addressed or litigated.
For many tenants, it’s the more investor to get involved from the word deal. You may want him or her to help locate a property for your business, to negotiate the terms of the contract with the landlord, and then evaluate the documents once the lease is signed. It’s safe to say that good lease agreement lawyers are worth their weight in gold.
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