BUSINESS LEASING: Let the Tenants Beware: Is Your Lease Really Standard?

Imagine you are a business owner that leases space in a shopping center for five years. You invest money to construct the premises to suit your needs by taking out a loan. Your business is small but successful, and generates enough revenue to give you a salary and pay the loan, but the storefront is essential to the business. Now imagine that the premises are badly damaged by a fire in the adjacent premises and will take six months to rebuild. You find alternate space that will only take two months to build out. What do you do - terminate the lease and walk away? Unfortunately the answer to this question depends on the language in your lease and, more often than not, you may have little say in the way this question is answered, even though damage of this kind may cause a significant burden on your business. A result that could have been avoided if you negotiated these contingencies into your lease from the outset.

Sure this may sound like a rare occurrence, but believe it or not, commercial leases are littered with landlord-friendly provisions that offer the landlord a multitude of ways to get the tenant out of the property, but afford the tenant almost no way to terminate a bad lease or make it prohibitively expensive to get out. Unfortunately, we do not often meet these tenants until something has gone awry and they cannot terminate the lease…even when circumstances warrant termination.

Most tenants do not attempt to negotiate the terms of their commercial leases because they assume the leases are “standard”, straightforward, or not negotiable, which is often not the case. And tenant’s failure to negotiate the terms means it has failed to protect its interest before entering into the lease, which is a time when it had significantly more leverage over the landlord to do so.

The moral of the story is to always review the lease for pertinent terms – including lease dates, rental amounts, CAM charges, extension terms, whether the premises will be delivered “as is” or with improvements, whether the landlord will provide notice of defaults, and so on. Landlords can insert many tricky provisions into those 40+ page documents. And generally seek counsel to review and negotiate your lease, and confirm that the terms are correct. A careful review before you enter into a lease can avoid costly problems later.

Lisa Odom is an attorney at Poole & Shaffery, LLP whose practice focuses on corporate and business law, real estate transactions and leasing, and wills, trusts and estate planning. For more information, or to schedule a consultation, please call Lisa at (661) 290-2991.