Ten Reasons Your Lawyer Should Review Your Commercial Lease Agreement

Reason #1: Leases are landlord-favored.  They’re written by the landlord. This means every provision the landlord could skew his way, will be so skewed.

Reason #2: For accuracy.  They’re such voluminous documents that often the landlord or property management company doesn’t carefully change all the required information to reflect your lease.  For example, one client had been paying on a lease for five years before I looked it over prior to trying to negotiate a reduction in her rent.  I discovered that the lease she had signed was actually for the bigger space next door.  This client had been overpaying rent for years and the landlord was unwilling to even consider refunding her the overpayment without her suing him.  Because she was already struggling, which was why she needed a rent reduction in the first place, she couldn’t afford to sue him.

Reason #3: CAMs. Common Area Maintenance fees.  These are sort of like HOA fees but for commercial buildings.  All tenants share in the cost of striping the parking lot, landscaping the common areas, lighting, security, etc.  If your share of these fees is dependent on how many tenants the landlord has, the more tenants move out, the higher your share of the CAMs will be. One client (unfortunately the same client as in the previous example) saw her CAMs rise to the point where they were almost as much as her monthly rent payment.  A new owner had bought the complex and for whatever reason, started evicting everyone who was even one month behind.  Because the landlord was unwilling to reduce her rent, she had to close her business.  Make sure your CAMs are dependent on the total rentable square feet, not the total rented square feet.  Also, ask for a report of the previous year’s CAMs so you can see about how much they run.  This report will also give you a chance to makes sure the fees are legit.  Sometimes landlords sneak in charges that shouldn’t be shared among the tenants.

Reason #4: Personal guarantees.  A personal guaranty eliminates any protection your corporate entity might provide against someone suing your business and attaching your personal assets.  These are often buried deep in a lease agreement and clients sometimes don’t even know they’ve signed them.

Reason #5: Don’t let them rent to your competition.  Make sure your lease prohibits the landlord from renting to your direct competition. I recently met with a hair and nail salon that had to drastically slash the prices of their nail services because the landlord had rented space to a nail salon in the same small complex!

Reason #6: Don’t let them rent to someone who will ruin your business.  After lunch with a friend, we decided to treat ourselves to a cupcake from a bakery a few doors down from the restaurant.  I opened the door and took a deep breath, expecting to be enticed by the smells of sugar, butter, flour, and chocolate but was instead hit with the overwhelming and sickening stench of cigar smoke.  What the French?  Yes, this cupcake bakery’s landlord had rented the space next door to a smoke shop. Now all you smell when you walk into the bakery is cigar smoke.  I even bought an apron from the bakery for a friend’s birthday and had to wash the smoke smell out of it before giving it to her.  No one could argue that half the magic of shopping in a bakery is the aroma of freshly baked goodies.  I wonder how much more business this particular bakery could do without the smoke shop next door. Unless the landlord wants to take affirmative steps to make sure the noxious fumes from next door don’t permeate your space, make sure they don’t rent to someone who will generate noise or smells that will kill your business.

Reason #7: Let the landlord know you won’t be bullied.  I’m certainly not saying all landlords are bullies.  However, there are some out there that will push tenants around as much as they can and this often stops if the landlord knows the client has a lawyer. We can see through all the scare tactics and we can translate the lease language so they can’t sneak anything by you.

Reason #8: Landlords sometimes like lawyers.  I know, nobody likes lawyers, but sometimes landlords are dealing with so many properties and so many tenants that are calling and e-mailing with questions about the lease that they prefer to deal with someone that speaks the language.

Reason #9: Lawyers can sometimes negotiate better terms.  Whether it’s putting an expiration date on the personal guaranty or making sure your CAM charges are properly calculated or ensuring that if they want to move your location to the opposite end of the complex because Wal-Mart wants to expand, they pay you for your moving expenses and renegotiate your rent.  Yes, that’s a real-life example.  In this particular lease, my client the tenant would have to pick up and move if Wal-Mart wanted to expand with no reimbursement of his expenses, no modification in rent, and no “sorry for your trouble” consideration. I crossed out that entire section, returned the lease to the landlord, who subsequently said “oops, that was the wrong lease; let me send you the right one.”  The correct lease had no such ridiculous provision in it.  Veddy intedesting…

Reason #10: Cost/benefit analysis.  Most commercial leases are for at least three years, sometimes five.  Even in this market, if you’re paying less than $1,000 a month you’re in the minority.  It’s well worth the price of less than one month’s rent to have a lawyer look over the lease that you’re going to be committed to for three to five years.  Once you sign that lease, you’re bound to every last one of its provisions and if you breach, chances are the landlord has bigger guns than you do.  Make sure you understand all the terms, how to get out of the lease, and what you have to do while you’re a tenant.

Incidentally, anytime something significant happens that might affect your lease, you should talk to a lawyer.  Ideally, it would be the same lawyer who originally reviewed the lease but doesn’t have to be.  For example, a recent client wanted to get out of her lease because the complex went into foreclosure and the property management company wasn’t keeping up the place.  Her lease required her to put those types of complaints in writing to the property manager, who had 30 days to fix it.  She didn’t.  If she’d had any documentation of the landlord failing to do so, it would have been a breach on the landlord’s part and she could have gotten out of the lease.  Without this documentation, she’s on the hook for another two years in a space she hates with rent she can’t afford.