Things a Tenant Should Know About Commercial Leases

Tenants who are considering leasing commercial property for their business need to keep several things in mind as they investigate different properties and prepare to sign a lease, to protect their interests when dealing with commercial landlords.

1. Consider the other shops or businesses that are in the center of development. If you are looking at commercial space in a large shopping center or mall, there may be one or two large businesses, called “anchor stores,” that are intended to attract business to the development. While having anchor stores nearby may be useful, they may also have significant power to control other tenants in the development. Read the lease carefully to ensure that the anchor store will not have extensive power over your business operations.
2. Make sure you know what kind of space you want to lease. This includes considering: how many square feet you require, what location best serves your needs, what the parking lots and common areas are like, and if the other tenants are of the same type and quality as your business.
3. Do not be afraid to negotiate with the landlord. Unlike residential leases, parties to a commercial lease have significant power to negotiate certain terms. You and your legal representative should push for rent terms that you are willing and able to meet, and you should not feel pressured to accept terms and provisions that would hurt your business, such as restrictions on sales or waivers of certain legal rights.
4. Know what your rights are. As a commercial tenant, you have the right to quiet enjoyment of your space without interference by your landlord. You also have the right to pursue legal remedies if your rights are violated, and you should not sign anything waiving that right.
5. Know what your duties are. Commercial tenants also often have certain duties. Tenants cannot commit waste or unnecessarily destroy or ruin the property. Often, commercial tenants are also expected to help maintain common areas of the center or mall, including parking lots, hallways, and security. This information should be clearly spelled out in your lease.
6. Understand how the landlord is charging rent. Often, rent for commercial leases includes a base rent amount as well as an additional amount proportional to the profit margins of the business. It is important to understand how the rent will be calculated before signing the lease.
7. Consider the future. What happens if the landlord wants to move the tenants to a new development? What if your company goes out of business? While no one wants to think about these possibilities, it is still important to consider what might happen if your landlord wishes to uproot you, or if you can no longer pay rent. If this information is not provided in the lease, you and your lawyer should insist on having written and signed documentation of what will happen if either your position or your landlord’s position changes.

Relevant Resources:

• 11 Things You Must Know About Tenant Improvement Allowances (TIA)
• What Are Leasehold Improvements?