Why small business owners should hire a lawyer to review a commercial lease before signing:
Commercial leases are long and complex documents. They often favor landlords. Without careful review by an experienced attorney, tenants can unintentionally sign leases that are very unfavorable and full of hidden costs. Below are several issues that are often overlooked by tenants, but can be very costly if not drafted correctly:
Triple Net Lease: A triple net lease is a lease in which the tenant is required to pay taxes, insurance, and maintenance fees for the building. This type of lease can be very unfavorable to tenants. These costs are often calculated using complicated formulas and language. You should make sure that you fully understand how the costs are being calculated before signing the lease. If not, you could end up paying more than your fair share of the costs.
Common Area Maintenance Fees: Common area maintenance fees (also known as CAMs) are fees that a tenant pays to cover the landlord’s general upkeep expenses. These fees typically cover services such as landscaping, snow removal, lighting of common areas, etc. If tenants share building systems, such as HVAC or plumbing, the system maintenance fees will likely be included in CAMs. You should be aware of how CAMs are calculated in order to prevent overpaying. Make sure that the CAMs do not include landlord expenses such as property manager salaries or renovation expenses. Also, make sure that you are not responsible for large or unanticipated repairs (such as a collapsed roof).
Exclusive Use: Tenants most likely will want an exclusive use provision in their lease. This provision is very important because it ensures that the landlord will not lease any other units to your competitors. The language used in exclusive use provisions is crucial. If the language is not drafted carefully and correctly, a landlord may be able to rent space to a competitor within the same building.
Indemnification: A typical commercial lease will require the tenant to indemnify the landlord. This means that if the landlord is sued as a result of something that happened within your business, you have to pay for the landlord to defend the suit. An experienced attorney may be able to limit the scope of the indemnification, which will lower your insurance costs.
Miscellaneous: Commercial leases are long and complex documents. Tenants often overlook the small things that are important to their business. Does the lease state the correct square footage? Are the start and end dates of the lease correct? Does the lease state the correct amount of monthly rent that you agreed to pay? Will there be enough parking for you and your customers? What type of signage you are allowed to display? Also, make sure to not let the landlord rent to a tenant who will emit smelly odors or loud noises. These simple protections could end up saving your business.
Ideally, you would have an attorney review a lease before you signed it. However, you should also talk to an attorney if something significant happens during the life of the lease such as a change in ownership or unfair treatment by the landlord. An attorney will be able to tell you if the landlord has breached the lease and what remedies are available.