Real Estate Law
Negotiating a Commercial Lease Includes
Asking the Right Questions
Good questions can prevent unfair advantages, avoid legal action, and help produce a lease that is fair to both sides.
As our local economy builds steam, leasing transactions between commercial
landlords and tenants are on the rise. Landlords are filling up space that was
formerly occupied by Vacant signs,
and many new and growing businesses are becoming commercial tenants for the
This article explores some basic lease terms that you may assume you
know, but, by focusing on the right questions, may take on new meaning and
In his recent book, Good Leaders Ask Great Questions, best-selling author
John Maxwell explores the risks of thinking we know the answers to questions
(when we don’t) and of refraining from asking a question for fear of looking
uninformed or silly.
In short, asking good questions opens doors to information that would otherwise
remain closed to you. For parties negotiating a commercial lease, good questions
can prevent unfair advantages, avoid legal action, and produce a lease that is
fair to both sides.
Parties. In a lease, the parties are usually described as
“Landlord” and “Tenant,” or “Lessor” and “Lessee.” Simple, right? Not
necessarily. The significance of those terms can go far beyond simple
Consider: If a party is a corporation, should just the operating corporation be
listed as the party? Or should the parent corporation be listed, also? For newly
formed corporations or LLCs, when does it make sense to list their owners? If
you can add individual shareholders or members, can they be required to
guarantee payment and performance under the lease?
In light of these considerations, asking who should be listed as the landlord or
tenant should no longer seem like an uninformed or silly question.
Property. The “property” is usually defined as the space to be
leased. If an entire building is subject to the lease, the mailing address and
tax parcel number should be sufficient to identify the leased property.
But if the leased space is only a portion of the building or parcel, then the
parties need to describe precisely what is being leased. Interior space? Roof?
Interior and exterior walls? A full suite? Specific parking spaces? Are there
common areas – such as sidewalks, conference rooms, kitchen facilities,
landscaped areas, parking – for which the tenant will be charged?
It is critical to ask questions, so that both parties understand and are in
agreement on what “property” the lease covers, and what does and does not go
Rent. In a commercial setting, “rent” may simply be a specific
dollar amount per month. Or it might include a percent of the tenant’s income or
revenues, or some of the landlord’s operating costs, such as landscaping,
exterior maintenance and utilities. A commercial lease’s rent provisions might
also include annual increases.
Are such terms part of your pending agreement? Or how about these: Can a tenant
offset its rent obligation by making improvements to its space? How is the
tenant’s rent affected by vacant space? These are all important issues that
should be part of the negotiations.
Term. The “term” of the lease seems obvious: from the beginning to
the end. But when does the lease begin? When the lease is signed? When the space
is ready for occupancy? When the tenant opens its doors for business?
When does a tenant have an insurable interest in the property – when it signs
the lease or when it begins to occupy it? Who has the right to extend the term
of the lease, and for how long? Each of these questions should be thoroughly
discussed between the parties before they agree to a final lease term.
It’s been said that “the future belongs to the curious.” Before signing a lease,
be curious; think about your business goals and needs, ask good questions, and
negotiate a lease that is fair to both parties and will help you achieve a
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