For many of our business clients, the most important agreement that they enter into is a lease agreement. However, in my experience, most Tenants do not review their lease agreement with sufficient detail and are later surprised by what they agreed to.
With lease agreements, there is no substitute for repetition. After reviewing hundreds of leases, the traps buried in the pages of legalese become clear. However, a Tenant reviewing their first lease can go a long way towards protecting themselves by focusing on these items:
1. Letter of Intent
Tenants should verify item by item that all their deal-breaker LOI terms actually make it into the lease.
Tenants should verify that all of the parties are correctly identified. This can save a lot of problems down the road.
Tenants should confirm that they understand how rent increases and “Common Area Maintenance” charges are calculated. Review these sections carefully and understand what costs are passed to the tenant.
Tenants should confirm their intended use(s) are described accurately. If not, Tenant risks being in breach of the lease on day one with an unauthorized use.
5. Premises Condition
Tenants should fully inspect the premises before signing the lease and note any issues in the lease or ensure they are corrected.
6. Landlord Improvements
If the landlord is making improvements to the premises, tenants should verify that all of the landlord’s work is clearly specified in the lease.
7. Tenant Improvements
Tenants need to understand all the conditions that must be satisfied to trigger payment of the tenant-improvement allowance.
Tenants should consult with its insurance agent early in the review process to understand that costs of the insurance required by the lease.
Tenants should verify that their option is included and understand the exact process for exercising it.
10. Negotiate the Lease
A draft lease is rarely take it or leave it. While it may not be feasible to negotiate every provision of the agreement, there might be room to negotiate certain important terms for the tenant. It doesn’t hurt to ask.
Jason Beaman is an associate attorney in the law firm of Poole Shaffery & Koegle, LLP. Mr. Beaman’s practice includes general business and corporate law, probate, trust administration and trademark law. For more information, contact 855-997-7522.