COMMERCIAL LEASE REVIEW CHECKLIST
I have gone through the current lease agreement. In this review, I shall refer to the current
lease agreement (the Fourth Amendment to the Lease) as “the agreement”. There is no clause
in the agreement that incorporates the Original Agreement (entered on March 19, 2011), as
part of the Fourth Amendment.
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 below. Also,
please note that all references to the Lease agreement shall be to specific clauses in the
agreement. The numbering of my comments below does not reflect any numbering in the
agreement.
1. The Parties
The parties to the lease should correctly be reflected in the lease. The requirement that
parties be identified correctly ensures 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.
In the agreement, the first paragraph introduces the parties. Please be careful to ensure
the proper name and addresses for each party are included as parties to the agreement.
2. The Premises
The premises are accurately described in the lease and the square footage stated.
However, key amenities at the premises are not clearly referenced. The agreement
needs to state clearly the key amenities at the premises. Such key amenities include
WiFi, parking space, toilets/bathrooms, and air conditioning.
The agreement should also show the plans and specifications to be approved by
Landlord. The plans and specifications section will help you adapt the premises to suit
your business. You therefore need to be extremely clear, just so you avoid any
misunderstanding that may arise later, when you design the premises to suit your
business.
3. Use of the Premises
The agreement does not contain a description of how the premises will be used. It is
essential that the agreement states how you will use the premises. While stating the
use of the premises, you should include the phrase “and all associated or related
business purposes”. This will give you the greatest degree of flexibility so that you
can adapt to changing market conditions.
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 building/complex, 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. Also pay close attention to the remedies available to
you when your use restriction is violated. Further, 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.
4. 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.
5. 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.
6. Insurance
I advise that you add provisions that exclude your 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.
7. 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.
8. Attorney’s fees
Section 10 of ythe agreement states that in case a lawsuit is filed, the non-prevailing
party shall pay the other party’s attorney’s fees and costs. This provision may make
you shy away from bringing suits against the Landlord because of the fear of paying
the Landlord’s expensive attorney’s fees if you lose the case. Therefore, I advise the
agreement be edited to “Every Party in any such proceeding shall pay its respective
attorneys’ fees”.
9. Estoppel and Release
Section 9 of the agreement states that you waive any claim or defense to the
performance of your obligations under the agreement based on forces that are beyond
your control. I find this provision unfair. You have a right not to meet your
obligations under the lease agreement, if your failure to perform is caused by such
causes that are beyond your control. Therefore, the agreement should be edited to
exclude your liability for loss, damage or failure caused by any factor that is beyond
your control.
10. Past Due Rent
Section 3 of the Agreement states that there is an accrued rent of $8,014.65. The
problem is that Section 2 of the Agreement makes any new tenant responsible for any
liability of the previous tenant, including any unpaid rent. For that reason, according
to the agreement, you shall also be responsible for the previous tenant’s debts. I
advise that the agreement be edited to limit your liability for the previous tenant’s rent
arrears. The landlord should not make you responsible for the previous tenant’s
liabilities.
Regards!
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