Commercial Lease Negotiations: What Landlords and Tenants Should Watch For

The terms of a commercial lease can have a dramatic impact on your organization’s ability to thrive. A favorable lease can help you grow, while unreasonable terms can mean the end of even a strong operation. Poorly drafted leases can also work against landlords, especially when vague language leads to confusion and disputes.

For all parties to succeed, there are certain things both landlords and tenants should look for in a commercial lease. Addressing each of these factors clearly and concisely is your opportunity to succeed as either a landlord or a commercial tenant.

Rent Structure and Increases

One of the first elements both parties examine is the rent structure. Tenants should confirm whether the lease is a flat monthly rate or a percentage of sales. Landlords often prefer escalations, such as annual increases tied to inflation or set percentage hikes. For tenants, understanding how rent may rise over the course of the lease is crucial to budgeting and financial planning. For landlords, the primary concern is ensuring that rent is structured to keep up with changing market conditions.

Common Area Maintenance

Maintenance fees and operating expenses can become a major point of contention. These charges typically cover shared spaces, utilities, and property upkeep, but they are often passed to tenants under the terms of the lease. Tenants should ask for detailed breakdowns and caps on annual increases, while landlords should ensure costs are allocated fairly. The contract should address costs for maintenance, HVAC, and other common spaces.

Lease Term

The lease term has significant implications for both parties. A long-term lease may provide stability for tenants and steady income for landlords, but it can also limit flexibility if the business needs to make a change. Renewal options are equally important.

Use Clauses

Use clauses spell out how a tenant can operate within the space they rent. Tenants are best served by clauses that give them broad options for how they use the space. This can secure growth opportunities and allow for necessary changes to their business model. Landlords, meanwhile, want to prevent tenants from engaging in activities that could harm the property’s reputation or conflict with zoning rules. The terms of the agreement should also specify whether the tenant has exclusive use of the property.

Assignment and Subletting

Business conditions change, and tenants may need the flexibility to assign their lease or sublet the space. However, not all landlords are open to this kind of arrangement. If the lease is silent on whether or not subletting is allowed, it can lead to costly disputes and even litigation.

Default Provisions

Every lease should clearly outline what happens if the tenant defaults or if the landlord fails to uphold their obligations. Tenants should watch for overly harsh penalties, while landlords need to protect their ability to regain possession quickly in cases of nonpayment. One way a lease can be problematic is when it contains vague language about what happens after a default.

Reach Out to One Oak Legal Today

Your best bet for securing a fair commercial lease is to work with skilled legal counsel. Contact One Oak Legal today to discuss your options.