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What to Consider When Entering into a Commercial Real Estate Lease

Wednesday, December 23, 2009 by Russell Stanaland

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.

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Posted at 11:05 AM

Topic: Business Law