Regardless of your industry, one of the first and most important agreements you’ll likely sign is a commercial or industrial lease agreement for your business. A lease agreement is also sometimes called a rental agreement. A clear and well-defined lease agreement helps both tenants and landlords understand their obligations and protect their interests. Priori is committed to helping you find the right attorney to draft or revise a lease agreement that serves your business’s immediate needs and accounts for future growth.
When leasing a space, it is important to do your due diligence up front. Getting out of a bad lease can expose your business to substantial legal cost and liability. If you find a space at a location and price that works for your business, you should hire an experienced real estate lawyer to ensure that the terms of the lease agreement work for you and fit your plans.
Common Commercial Lease Terms
Term of the Lease. The term describes the length of the lease and its start and end dates. Subject to certain conditions and exceptions, your business is responsible for rent for the length of the term.
Rent. The amount you must pay for the space is usually one of the major concerns any business owner has when entering into a lease agreement. Be careful not to get caught off guard by additional fees in your lease agreement, such as utilities, insurance, and taxes. These extra fees will increase your monthly payment, and therefore, you should calculate them into your rental estimate before signing a lease agreement.
Buildouts. Your business may need to renovate the space to suit your needs prior to moving in. Whether this involves extensive construction or slight modifications, your lease agreement should account for these buildouts—including who pays for them and who will own them when the lease expires.
Maintenance. This term identifies whether a landlord or a tenant is responsible for maintenance and repairs. This can vary from lease to lease and can encompass everything from providing for janitorial and handyman services to who pays for compliance with various laws and business codes.
Exclusivity Clause. An exclusivity clause limits your landlord’s ability to lease neighboring premises to your competitors.
Sublease and Assignment. These provisions provide flexibility for your business to vacate its space without breaking your lease. Subleases and assignments allow a tenant to transfer the lease, or, in the case of a sublease, a part of the lease, to a third party tenant. Typically, a landlord will reserve the right to approve any potential sublease or assignment.
Liability & Indemnification. The allocation of risk is a crucial component in any lease agreement. These provisions outline each party’s liability, or responsibility to pay, for any damages, injuries, accidents, etc. that occur on the property. Typically, an indemnity clause in a lease allows the landlord to seek reimbursement, or indemnity, from the tenant for any money paid to a third party as a result of loss or injury on the property. As a tenant, you should be wary of indemnification that includes injury caused by the landlord’s own negligence.
Termination. Terminating a lease prior to its expiration without liability can be difficult. However, a lawyer can draft certain provisions—break, modification, breach, buyout and acceleration—into your lease agreement to account for an early exit.
Depending on whether you need a lease drafted from scratch or simply reviewed, the cost of a commercial lease agreement can vary significantly. When you hire a lawyer in the Priori network, reviewing or drafting a lease agreement can cost anywhere from $350 to $3,000, with hourly rates ranging from $150-$450 per hour. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers.
As a tenant, why do I need a lawyer to review my commercial lease terms? Can’t I just read the lease agreement myself?
Lease agreements are drafted by landlords, and therefore each provision will likely be drafted in his or her favor. An experienced real estate lawyer reads through lengthy and convoluted lease agreements and identifies any particular provisions that should be revised in order to protect your interests. For example, as a business owner you likely do not want a personal guarantee in your commercial lease agreement because that will offset the protection of your personal assets that you created by forming a separate legal entity instead of operating as a sole proprietorship. In addition, lawyers are trained negotiators, and they can tactfully discuss any required changes without losing your lease opportunity.