LECOMMERCIAL ASE REVIEW CHECKLIST
I have gone through the Contract. In this review, I have made my comments regarding the most essential and contentious issues that need to be looked out for in commercial leases. Accordingly, I outlined my observations in numbered format. I have made relevant changes in the lease per my recommendations herein. All references to the Lease agreement shall be to the unedited (original) lease that you sent to me.
- The Parties
The parties to the lease are correctly reflected in the lease. It is crucial that parties be identified correctly just so you avoid situations where less than all the owners of the property will be signing the lease, or where an individual or entity that is not on title will be signing as landlord.
- The Premises
The premises are accurately described in the lease and the square footage and any key amenities are clearly referenced.
However, I would like you to have an abundance of caution when doing the plans and specifications to be approved by Landlord. (Per Section 11 of the Agreement). In the specifications on how you will adapt the premises to suit your business, you need to be extremely clear, just so you avoid any misunderstanding that may arise later.
Also, the lease fails to state how long you will have to prepare the said plans and specifications, and how long the Landlord will have to approve them (and whether silence will be deemed approval or disapproval).
- Use of the Premises
The lease contains a broad description that will give you the greatest degree of flexibility so that you can adapt to changing market conditions. Notably, the phrase “and all associated or related business purposes” in section 1(g) will be helpful for your exit strategy purposes.
I would advise that you also consider requesting an exclusive right to use the premises for your permitted use (i.e., a use restriction) to limit competition within the commercial center. Seek to make the use restriction as broad as possible and applicable to the shopping center, any outparcels that may be located just outside the shopping center and to adjacent property owned by the landlord that may serve for future expansion of the center. Pay close attention to the remedy available to you in the event your use restriction is violated. Strive to obtain specific remedies, such as rent reduction, lease termination, and/or the right to pursue litigation in the landlord’s name against a violating party. Section 7 attempts to address this issue, but it limits it to businesses established by you.
- Expansion Space
I advise you have a clause containing an option to expand the premises and, if feasible, specify the acceptable expansion premises in advance. In this regard, you may ask the landlord to either give you a right of first offer or a right of first refusal for additional expansion space.
Regarding the right of first offer, the landlord is generally required to present to you an offer to lease the subject premises before presenting such offer to others.
Regarding the right of first refusal, when expansion space becomes available and the landlord has found a prospective tenant and has entered into a letter of intent or a tentative lease agreement with that prospective new tenant, the landlord must offer the expansion premises to you on the same (or substantially the same) terms and conditions as with that prospective new tenant.
- Early Termination and Term
I would advise you to obtain an early termination right to protect yourself against the risk that a location is unsuccessful. To clarify, “unsuccessful” here does not necessarily mean negative cash flow, but it may simply mean that your business fails to achieve a certain volume of sales or some other metric. If the landlord refuses to grant you an early termination right, consider requesting a shorter initial term along with one or more options to extend the term. In this way, after the initial term expires, you have the flexibility to decide whether you wish to stay or leave at that time.
In that regard, Section 1(h) puts the term at 3 years. I find this period too long because in the event you find the location unsuccessful, you will have to wait until the said 3 years are over. Consider either reducing the term (with an option of renewal) or having a separate clause for early termination.
- Relocation of premises
In Section 20, the lease provides that the Landlord reserves the right to relocate you to new premises within the shopping center, at the Landlord’s discretion. I would advise you to limit the number of times your premises may be relocated.
- Insurance
The provision on insurance is contained in Section 17 of the lease. I advise that you add provisions that exclude liability resulting from the landlord’s negligence or willful misconduct and consider requesting indemnification by the landlord for bodily injury and property damage caused by the landlord or any of its agents.
- Abatement of rent
I advise that you include a provision that provides for an abatement of rent in the event that your access, use or enjoyment of the premises (or common areas) is adversely affected by the Landlord’s actions. The amount of the partial abatement should be based on the extent of impairment or interference with your business.
Regards!
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