Although they are one of the most common real estate transactions, commercial leases are also one of the most important aspects of a company’s ability to succeed. As with residential leases, many commercial landlords utilize a form lease where blanks are filled in and presented to a tenant for signature. All too often a tenant will skim the filled in portions concerning rent, etc., sign and return it without being fully aware of what has been committed to on either side.
While lease forms can be helpful, it is also important to remember that leases are complicated documents, with complicated obligations of which both landlord and tenant should have a thorough understanding of. When issues arise during a lease term, a poorly drafted or poorly understood lease can cost landlord and tenant much more financially then review by a qualified attorney would have cost. Some common mistakes we see in leasing agreements are:
What’s in a name? It is odd how many times we see leases which fail to correctly identify the landlord and/or tenant, especially if either is an entity. It is extremely important that this information is correct. If you are a tenant and the landlord name is incorrect so that the owner of the building is not listed, then do you even have a valid lease? If you are a landlord and the tenant lists an entity name that doesn’t exist, who will you look to for liability if the tenant breaches the lease?
What do you mean something else broke?! Form leases vary widely in allocating responsibility for maintaining the leased premises. Typically the landlord maintains the outer walls, roof and foundation. Either party can be liable for repairs to the water, sewer, gas and electric lines within the premises. Tenants can have responsibility to maintain service contracts and/or replace equipment, which can run hundreds or even thousands of dollars. The expense of a HVAC system replacement can be a very shocking surprise, especially when a lease term is almost over. It is always best for both parties to fully understand their obligations before the lease is signed.
Hey, that’s mine! Most commercial lease forms include language, which upon lease default by the tenant, grants the landlord a contractual lien on the tenant’s property. This landlord’s lien typically does not even require the landlord to file a financing statement. Unless a lease expressly waives the landlord’s liens or requires the landlord to subordinate such liens to that of a tenant’s primary creditor, the tenant may find itself in a tough spot between its two largest creditors, the landlord and the bank.
While commercial leases are often tedious and confusing to read, it is very important to fully understand every provision in a lease agreement in order to feel comfortable that the terms of the lease will meet the expectations and needs of both parties.
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