Commercial Leases

Are you a commercial landlord? Are you planning to lease space for your business? You’ve rented apartments before, so a commercial lease can’t be too bad, can it? A commercial lease is great, if you don’t mind:

  • paying a lot more rent
  • for a lot less space
  • paying for remodeling
  • paying to undo it when you leave
  • paying hidden costs: utilities, taxes & more.

 

What? You do mind? Then put me on your team as your General Counsel!

IT’S NEGOTIABLE!

Commercial leases are more negotiable than residential leases (which are more tightly regulated). Commercial leases also offer more choices, both good and bad.

I have represented both landlords and tenants. One client opened four Lenny’s Sub, each in a separate shopping center, each with a different landlord and a different lease for me to negotiate. We worked them all out. Let me do the same for you.

WHAT SPACE?

Make sure the lease describes the space you want. Is all the space usable space? Often times, the commercial space rented space measured from wall to wall. After build out, the usable space may be much smaller.

In a shopping center or office building the tenant may share responsibility for common areas with other tenants. The tenant should make sure his responsibilities are clear. The lease should specify such matters as who will be responsible for cleaning and maintaining common areas; when will the common areas be open or closed, and when facilities, such as restrooms and storage, are available? We can draft the lease to assure you get what you want.

COSTS

What is your rent? Is it a flat monthly rental? In shopping centers and office buildings the rent is often based on the tenant’s revenues at the location. Does the lease add, “operating costs,” — real estate taxes, maintenance, repairs, security or insurance? We are prepared to negotiate more favorable terms. In addition, our tax background helps us to save you costs by reducing taxes. See TAX ASPECTS, below.

INSURANCE

Determine who will be responsible for insuring the building. If the tenant must insure the building or its contents, it will be costly. The tenant should, of course, have a policy for accidental injuries that occur on his premises. Find out if the tenant is obligated to insure against injuries that are caused in common hallways and stairwells.

UTILITIES

What about utilities? How much is the cost of utilities, are they included in the rent or are they to be paid separately. Do the premises need special water or electrical lines or hookups? If so, who bears the cost?

TERM

Be clear on the time period of the lease — for how long must the tenant pay rent? If the lease term is for a year or two, it is a good idea to get an option to extend the lease so the tenant can advertise and promote its business and its location. Moving can cause a lot of other problems. Besides, if one moves too often, it may discourage some customers.

RECORDING

Long-term leases are recordable in some states. They are recorded in the same office where a deed to the property would be filed. If the lease is recordable, it is probably a good idea to do so. Recording tells governmental authorities and others where to contact the tenant. We can record the lease.

RESTRICTIONS

It is important to determine whether there are any restrictions on the tenant’s activities in the leased premises. Be sure the lease does not contain any restrictions on desired signage or advertising. Likewise, zoning may prohibit. certain activities. We are all familiar with the grounded signs in Germantown. Sometimes historical landmark laws regulate signs on old buildings. We can provide language in the lease that puts the burden of obtaining any permit or variances on the landlord.

REMODELING

The lease should discuss remodeling. Some spaces require extensive remodeling. Can the tenant do it? We make sure who is responsible for the costs of remodeling, who picks the contractors to be used, and who owns the tenant improvements. Also is the tenant required to restore the premises to their original condition at the end of the lease? This can be expensive or, in some instances, impossible.

EXTERIORS

Customarily, the landlord is responsible for the exterior of the building. The landlord’s must make sure that the roof and walls do not leak during rainstorms and are properly ventilated. Make sure the lease specifies who is responsible if the building is damaged or the tenant’s property is damaged or destroyed.

SECURITY

A lease should cover security if it is required. If the premises are inside a shopping center or office building, the landlord will probably be responsible for external security. If the premises is an entire building, it is customarily the tenant’s responsibility to provide desired security. Can the tenant install locks or alarms?

WRITTEN AGREEMENT

Finally, be sure that the entire agreement is in writing, drafted by a professional like me, so that each party gets what he thinks he is getting.

TAX ASPECTS

Taxes play an important part in the profitability of leasing. I can find you tax breaks to offset your costs. For example, normally the cost of commercial rental property is written off over 39 years (less than 2.6% per year). However, in 2014, the tax laws allowed fifteen year depreciation of up to $250,000 in “qualified leasehold investment property,” including certain restaurant and retail improvements in leaseholds. This 15 year depreciation break ended at the end of 2014. However, my sources indicate that Congress will likely reinstate that law retroactively for 2015. I am monitoring. Talk to me for more information.

AND MORE…

There are many more concerns that we cannot cover here. Just a few are:

  • How is the deposit handled?
  • Does the landlord have a lien on the tenant’s property to secure the rent?
  • What is the tenant’s liability for damages to the landlord or the premises?
  • What are the tenant’s rights and responsibilities if it terminates the lease?

About Wis Laughlin

I help clients with tax preparation and IRS representation, estate planning, and complex contracts, including LLC's. As a former IRS tax attorney in their National Office. Law.com picked Wis in 2017 and several prior years as one of the Top Tax and Estate Lawyers in Tennessee. I am your advocate, not your accountant. I don't tell you what you can't do. I show you how to do it.
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