Original article posted in Inside Tucson Business here.
A commercial lease contract has dozens of issues that detail your rights and obligations. It can get overwhelming.
Don’t get caught with a lease you don’t understand. Here are some common issues and tips you need to know about a draft lease.
Entire Agreement. Before sealing the deal, make sure your lease contract spells out everything that you were promised in negotiations. Review all your proposals and notes on the transaction. Don’t rely on promises or outside agreements. Make sure it’s all in there.
Legal Entities. Mistakes in identifying the parties involved in the transaction can be costly. You want to maintain the protection that the business structures of your corporation or limited liability company afford.
Description. Some lease contracts describe the premises by both the rentable and usable square footage. Others give the suite number and refer to an architectural drawing of the space. Always ask how recently the space was measured and by whom. Have an architect make accurate area calculations.
Term. This includes the commencement date, expiration date and contingencies for a possible delay in possession.
If the space is vacant and in move-in condition, you likely will not have any delay in possession of the premises barring strikes, riots, natural disasters or other acts of God. The one exception is if there are certificate of occupancy (CofO) issues.
If the space is subject to construction work, you may need to anticipate delays or establish a “drop-dead date.” That gives you the right to obtain penalties from the landlord.
Frequently, a delay in possession does not extend the term of the lease, leaving you with a shorter term than anticipated. Make sure any delay automatically extends the term’s expiration.
Substantially Complete. This means the space is ready to occupy with only a punch-list of items to be completed or corrected. Make sure you negotiate for at least 30 days to submit your punch-list to the owner.
Insurance. Regardless of whether or not you reimburse the owner for the insurance policy, you are required to provide your own insurance. Start by sending this part of the lease contract to your insurer with any clauses that deal with attornment, indemnification and subrogation.
Review. You must review the entire contract with your legal counsel to make sure you understand what you are signing. Do not get lulled into thinking that the bulk of the lease is boilerplate. You never know what may be buried in the miscellaneous provisions.
Signature. You will be required to sign as many as four copies of the lease. Initial every page of the lease when you are signing to prevent any accidental substitution of pages later on.
You will next need to provide good funds to cover the first month’s rent, security deposits and contribution to tenant improvements. You also need to deliver an insurance binder from the insurer.
Commercial Real Estate Group of Tucson can help you understand these provisions and make sure everything is covered to your satisfaction and benefit. Contact us at 299-3400.