The Importance of Lease Review
A commercial lease is one of the most significant financial commitments a business makes. Yet many tenants sign leases without fully understanding the implications of key provisions. This article highlights the clauses that deserve your closest attention.
Critical Clauses
Rent Escalation
Understand how and when your rent will increase. Common structures include fixed annual increases, CPI-based adjustments, and percentage rent tied to revenue. Each has different implications for your long-term costs.
Personal Guarantees
Landlords frequently request personal guarantees from business owners. Negotiate limits on the guarantee — such as a cap on the amount, a burn-off provision that reduces exposure over time, or a good-guy guarantee that limits liability if you vacate properly.
Assignment and Subletting
Your ability to assign the lease or sublet space can be crucial if your business needs change. Ensure the lease provides reasonable flexibility while understanding any landlord consent requirements.
Operating Expenses
Triple-net leases pass operating expenses to tenants. Review the expense categories carefully, negotiate caps on controllable expenses, and ensure the right to audit the landlord's expense calculations.
Best Practices
Engage experienced real estate counsel before signing any commercial lease. The cost of legal review is minimal compared to the potential exposure from unfavorable lease terms over a multi-year commitment.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.