Essential Commercial Tenant Lease Terms

The New Year brings with it resolutions ranging from weight loss and exercise, to ways in which to improve the “bottom line”.   A new lease of smaller, more efficient space, may be one way to “trim the fat”, while a move to a larger space may provide a “training” facility for a future increase in muscle in the marketplace.  In either scenario, the commercial lease is a significant legal document that can have long term legal and business ramifications.  Therefore, a commercial lease should be reviewed by legal counsel and negotiated prior to its signing.  Some essential lease provisions are as follows:

<                     Tenant’s Permitted Use – The lease will state the permissible use of the space by the tenant during the lease term.  The stated use should be as broad as possible, because any future assignment of a remaining lease term by the tenant to another may be limited to those businesses engaging in a business within the same defined “Permitted Use” stated in the lease.  Additionally, a tenant may desire to have an exclusive use with respect to other tenants occupying other portions of the premises in which the space is leased. Also, it may be desirable to limit the type of tenants that the landlord may lease to in other portions of the premises to exclude “undesirable” businesses. 

<                     Common Areas and Responsibilities – The leased premises consists not only of the particular space being rented, but usually includes some obligations with respect to areas shared in common by other tenants of the premises.  The lease should clearly list what items of common area maintenance require a proportionate financial contribution from the tenant, and which are solely the responsibility of the landlord.  For example, does the landlord clear snow from the parking lot at its own expense, or is that a shared obligation of the tenants.  CAM’s or “common area maintenance” expenses can substantially increase the lease costs over and above the base rent.

<                     Assignment/Sublet Rights - Any commercial lease should set forth a tenant’s right to assign and/or sublet the lease.  An assignment results in a tenant’s complete transfer of rights to the space to another, while typically retaining all lease obligations.  A sublet results in a transfer of less than all rights to the space and/or less than all of the remaining term of the lease, while also retaining all lease obligations.  Most landlords seek to limit the tenant’s right to assign or sublet their leases, charge fees to do so, and require a forfeiture of any “profit” sought to be made by a tenant in assigning or subletting.

<                     Default Events/Remedies - The lease should also explicitly set forth what occurrences will be deemed a breach of the lease by the tenant and what, if any, time periods and actions may be undertaken by the tenant to cure a breach and avoid termination of the lease.  In that regard, the lease should also specify that the tenant must receive written notice of an alleged breach.  We have seen many leases that do not provide for any notice or cure period.  In such an instance, a landlord may be entitled to commence an eviction proceeding by virtue of a single miscue by a tenant, no matter how seemingly insignificant.  In addition, we have seen lease provisions that limit the landlord’s remedies upon default to the commencement of an eviction and others as broad as also permitting the landlord to recoup accelerated rent, CAM charges and re-letting costs, without any credit for future payments actually received by the landlord from a subsequent tenant.  We have successfully negotiated these provisions in order to avoid these potentially excessive and open-ended expenses.