Five Good Reasons to Hire a Real Estate Attorney to Review Your Commercial Lease

There are many complex legal issues that can arise in transactions involving negotiation of commercial leases for office, retail, warehouse or industrial space, and the negotiation of lease renewals or subleases.  Here are five good reasons why you should hire a real estate attorney to negotiate and review your commercial lease, lease renewal or sublease:

  1. Your real estate agent or broker may tell you “Don’t worry about it, I have already reviewed the lease (or sublease) on your behalf.  After all, as you can see, it’s mostly boilerplate.  Nothing to really be concerned about.”  Not necessarily true.  Commercial leases are often drafted by landlords and landlords’ attorneys, so commercial lease terms typically favor the commercial landlord, not the tenant.  Form subleases sometimes fail to address that the subtenant is required to perform all of the critical responsibilities of you, the original tenant, under the commercial lease, while you, as the original tenant, still remain contractually liable to the landlord for performance of those obligations.  That “boilerplate” that a broker may dismiss as “harmless” may actually contain obligations and responsibilities that you are not aware of or may fail entirely to address certain important obligations, all of which a careful review by a real estate attorney can reveal.
  2. Your commercial lease may include a tenant improvement allowance that permits you to make improvements to the leased premises in order to make the space suitable for your use and occupancy.  Typically, commercial landlords prefer to use their own contractors to perform and supervise such improvements to the premises, rather than letting the tenant control the build-out.  This is often the case where landlord is the owner of a modern Class A office building or where the leased premises are in a well-maintained, highly visible, high-traffic retail center. A real estate attorney can help you negotiate and prepare a suitable work letter as an attachment to the commercial lease.  A properly worded work letter will, among other things, require tenant approvals of the plans for the improvements and any changes to those plans, impose strict timeframes on landlord’s contractor(s) for performing the work, provide penalties for contractor delays in finishing the work, and delay commencement of the lease term (and payment of rent) until the work has been performed and completed to the tenant’s satisfaction.
  3. The proposed term for your commercial lease may be five to ten years, which is not unusual for a commercial lease.  In a changeable rental market, it might be preferable for you to negotiate a five year lease with a five year option to renew, or some other variation.   The commercial landlord may want to lease you an 8,000 square foot space, but you may prefer to lease a 4,000 square foot space with an option to expand into adjacent space in the building in the future.  A retail lease may give the landlord a right to require you to relocate your retail business under certain circumstances or to periodically refurbish the leased premises.  A real estate attorney can help you tailor the terms of the commercial lease to your current and future business needs and plans, taking into account that unanticipated events, such as an economic downturn or upturn, may occur.
  4. As a commercial tenant, you will typically want the lease to contain liberal terms that allow you to sublease or to assign the lease if your business or economic conditions change (for example, if your business grows to the point where you outgrow the space or, in the alternative, if your business shrinks or fails, or if you sell your business to another legal entity).  Most commercial landlords prefer to maintain as much control as possible over a tenant’s right to sublease or assign the lease; some may even try to prohibit these rights entirely.  At the very least, the lease should provide that a commercial tenant may sublease, “subject to landlord’s consent, which may not be unreasonably delayed, conditioned or withheld.”  Otherwise, under Pennsylvania law, the landlord may arbitrarily refuse to allow a commercial tenant to sublease the premises.  A real estate attorney can help you negotiate and draft appropriate language that allows you to sublease and assign the lease under a variety of business, financial and economic scenarios.
  5. As a commercial tenant, you need to be absolutely clear about who is responsible for carrying casualty and fire insurance and whether or not you need to carry business interruption insurance (and, if so, what amount of coverage you are required to carry).  You also need to understand which maintenance and repair obligations are yours as tenant, and which are the responsibility of the commercial landlord.  Finally, you also need to understand whether or not you are responsible for all or a portion of the maintenance of any common areas in the building and, if so, how the common areas are defined and what factors may escalate the common area maintenance charges.  A real estate attorney can help you understand and, as necessary, further negotiate these responsibilities to make them more favorable to you as tenant under a commercial lease.

Contact the Law Office of Catherine L. Pierce, Esq. for a consultation with an experienced real estate and business transactional lawyer.




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