A Commercial Lease Agreement is one of the most common contracts that a business will enter into, but far too often, a business will sign off on a lease after a cursory review.  As you can imagine, that can often lead to serious problems down the road.  Below is our top ten list of things to look out for when navigating your Commercial Lease Agreement:

1. Letter of Intent: When possible, it is always better to start with a (non-binding) letter of intent that at least lays out the key business terms. This is incredibly important in order to endure that Landlord and Tenant are on the same page and the parties can avoid the hassle (and cost) of prematurely drafting a full blown lease.

2. Maintenance, Repair and Replacement Obligations:  This is one the provisions/concepts Tenants often get tripped up on.  There are differences between a duty to maintain, a duty to repair and a duty to replace and understanding those differences is crucial as these provisions can add substantial cost over the life of the Lease. 

3. Additional Rent:  This is another provision that can lead to unexpected costs.  If your lease contains the concept of additional rent (beyond gross rent or “base rent”), you must be certain you understand how the additional rent is calculated and what it will cost of the life of the lease.

4. Extension Option:  When possible, having an extension option is critical.  A pre-negotiated prevision that allows for an extension at the Tenant’s option allows for a more level playing field when the initial terms comes to an end.

5. Early Termination Option:  Landlords do not always agree to an early termination option, but such a provision can provide for an escape hatch at some earlier point during the term of the lease where typically the Tenant pays some sort of early exit fee for the right to exit the lease early.

6. Permitted Use:  Another provision that is in almost every lease that can lead to trouble is the permitted use provision.  Here, the lease will lay out what the Tenant is permitted to do.  Too often this description is too narrow and does not contemplate all that the Tenant currently does or what the Tenant soon will be doing.

7. Improvements and Signage:  Tenants are usually good about capturing language to specify any work that is going to be done prior to taking possession, but it is also important to specify any known work that will be completed in the near term (or any signage that the Tenant will be seeking).  It is always easier to get the Landlord to sign off on the to-be-completed work at the time the lease is being executed rather than ask for permission a few months later.

8. Assignment and Subletting:  Most leases do not allow for assignment of subletting without Landlord’s permission.  Many Tenants, however, have affiliated entities or know that they will need flexibility when it comes to assignment and/or subletting.  Those exceptions should be worked into the lease from the start.

9. Security Deposit:  While all Tenants would love to avoid having to put up a security deposit, most Landlords will require them.  Exploring Letter of Credit options and security deposits that reduce over time can help make these provisions more manageable.

10. Insurance:  It is crucial that all Tenants have their insurance provider review the required insurance terms to confirm that they can be met.  If not, you will need to explore increasing coverage (as long as it is not cost prohibitive) or revising the insurance coverage provision to reflect the insurance coverage that Tenant actually has.

Having an attorney assist with the process is crucial and GCT is happy to ensure that your Commercial Lease Agreement meets your needs.