How to Properly Review Commercial Leases

In today’s economic climate, business planning is critical. One area that companies tend to overlook is their commercial leases. Commercial leases are generally long-term contractual arrangements between the landlord and the renter, sometimes spanning a five years or more. Therefore, it is critical for any business to review commercial leases before signing, to fully examine and understand the rights and obligations set out in the lease provisions.

Evaluate Your Lease Term

One of the first issues you must address is the length of the contract. Realize that all commercial leases are negotiable in some form, and the lease term is often a negotiable term. For a small business, one to two years is typically best, with the option of renewal at the end of the term included. This ensures that your business is not tied to that location for too long, but still allows you the opportunity to stay if you like the location.

If your business relies on location, such as a restaurant, moving frequently could hurt your business. Therefore, a longer lease term to secure the property might be more beneficial.

Examine the Lease for Hidden Costs

The fine print of a contract dictates all costs associated with your business lease. If your contract is a gross lease, then all costs should be included in the rental rate. However, some landlords are moving toward net leases, which means the owner can request payments in addition to rent.

Also, as a tenant, you might be required to handle upkeep and maintenance of common areas. Request information about all costs, and ensure those costs are included in the lease agreement so that there is no question about your financial responsibility to the property.

Request Modifications to Clauses

An attorney can assist you with seeking changes to clauses in the contract so that they are more favorable to your business. For example, a clause that allows you to sublet the property in the event your business closes or relocates is necessary.  If improvements are needed to retrofit the property to your company’s needs, you may be able to include a clause that not only allows you to make the improvements, but also compensates you for doing so.

One of the most important parts of a commercial lease is the termination clause.  Examine it carefully.  It should clearly explain what will cause a default, how the default can be remedied and any costs that may be charged in case of a default. It should also clearly identify how and when the lease may be terminated.  You might want to try to add a clause that gives you time to cure defaults prior to eviction. You might also try to negotiate a provision waiving penalties for early termination should events make it wise or even necessary for your business to relocate.

Reviewing a business lease requires knowledge of contracts and commercial contract laws in Arizona. If you need assistance with your business’s commercial lease, contact the team at Udall Shumway, PLC to discuss the case.

This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Review Commercial Leases, or any other litigation matters, please feel free to contact Udall Shumway PLC at 480.461.5300, or log on to udallshumway.com,  or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.