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What to Consider When Entering into a Commercial Real Estate Lease

Wednesday, December 23, 2009 by Russell Stanaland

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In two previous posts regarding legal issues arising from commercial real estate transactions I discussed LLCs and construction litigation. This time I want to share the factors you should consider when entering into a commercial real estate lease. As our San Francisco real estate attorneys have found, these issues and questions include, but are not limited to, the following:

  • Be sure to confirm that all legal and financial terms are properly reflected in the lease document.
  • Are common area maintenance (CAM) charges capped? Do they include capital expenses and does the lease include an audit right? How are overcharges handled?
  • Make sure that the responsibility for repairs is clearly documented in the lease.
  • Find out if the lease includes a corresponding provision indemnifying the tenant for landlord’s negligence. Most landlords will attempt to use a higher standard, gross negligence, to cover this provision.
  • Are there personal guarantees permitting early and do such guarantees cover only the guarantor
  • Make sure that terms of tenant build out are defined as payable by the landlord, not as a repayable loan to a tenant.
  • Use of premises must be clearly defined, especially if the tenant may wish to sublet.
  • Renewal options should be clearly defined, including required notice timeframe and a basis for calculating rent increases upon renewal.
  • Many leases allow a landlord to, under certain circumstances, relocate a tenant. The lease should be clear as to these terms, if they are present.

Lerner Veit & Stanaland
180 Montgomery Street
Suite 1850, San Francisco, CA 94104
(415) 781-4000

 
Posted at 11:05 AM
Topic: Business Law
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