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4 mistakes to avoid in a commercial lease agreement

On Behalf of | Mar 11, 2022 | Commercial Real Estate |

Commercial lease agreements can be complex documents designed to meet the needs of both the landlord and the tenant under changing circumstances. Whether facing a challenging economy or fluctuating market, it is not uncommon for landlords to often present a template lease agreement for numerous transactions. Unfortunately, this can lead to trouble in the future.

While every situation is unique, there are numerous errors that landlords should avoid when drafting and negotiating a commercial lease agreement, including:

  • Failing to include a pre-existing condition clause: It is not uncommon for a tenant to want to personalize the space to meet the needs of their business, office or storefront. When this entails removing walls, relocating doorways or removing flooring it could limit future tenants and dramatically decrease value. Including stipulations that the tenant is responsible for returning the property to its pre-existing condition could limit the amount of changes they feel are necessary.
  • Failing to include a complete list of operating expenses: There will often be some level of ambiguity around operating expenses as markets fluctuate and services change. However, it is wise to include as much specificity in the lease agreement as possible. Clearly explain what common area maintenance expenses the tenant must pay. Additionally, the landlord should explicitly note the taxes and insurance the tenant is responsible for prevent future disputes.
  • Failing to discuss use of space: While many areas make use of hybrid zones, it is wise to clearly stipulate the tenant’s use of space. Is this property going to function as retail? Office space? Having these discussions as early as possible can potentially negate conflicts of interest. Situating a clinician who specializes in primal scream therapy directly next to a spa could create immediate conflicts.
  • Failing to include timelines and consequences: Many people, including entrepreneurs and property owners, tend to avoid conflict when possible. Unfortunately, when drafting a commercial lease, it is crucial to include concrete information as well as strict penalties. Landlords should include terms such as what day the rent is due. Additionally, when does the landlord consider the rent late? Late rent demands what fees or penalties?

It is crucial that landlords protect themselves with a well-drafted commercial lease agreement. It is not uncommon for individuals to rush to complete a deal but avoiding these common errors can prevent heated disputes in the future.

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