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 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.