Commercial Lease Legal Issues Checklist, guest post by Justin Daniels

Our resident commercial real estate attorney has written his Top 10 Checklist for Commercial Lease Legal Issues to help you consider the important issues that come up in your lease.

  1. Confirm all financial and legal terms from lease LOI and properly reflected in the lease document.
  2. CAM Charges:
    a) Did landlord included capital expenses in CAM.
    b) Are CAM charges capped on an annual basis and is this CAM cap a cumulative one?
    c) Is there an audit right, what are terms for an approved audit firm, under what circumstances is the landlord responsible for tenants fees if there is a CAM overcharge.
  3. Repairs
    a) Does the lease clearly explain what repairs the landlord or tenant is responsible for especially as applied to HVAC.
    b) Does lease require that the landlord repair the roof only to pass such repair through as a CAM charge.
  4. Indemnification: Does the lease include a corresponding provision that Landlord indemnify tenant for landlord’s negligence although many landlords will use the higher standard of gross negligence when a tenant requests this provision.
  5. Personal Guaranty: Does the personal guaranty permit its termination prior to the end of the lease term. Does the personal guaranty cover just the “guarantor” or “guarantor and its assigns”.
  6. Assignment:
    a) Does the lease require Landlord’s consent in Landlord’s sole discretion (it need not justify its reason for giving or withholding consent) or that it won’t be unreasonably withheld (a justifiable reason must be given for withholding approval).
    b) If lease is assigned does it also permit the termination of the guaranty and if so such termination language must also be in the guaranty.
  7. Tenant Buildout:
    a) Make sure buildout is paid for by landlord and not a loan to tenant that must be repaid.
    b) If landlord does not timely complete the buildout there should be liquidated damages such as free rent for each day of delay.
    c) If landlord’s failure continues beyond a certain time period the tenant has the right to terminate the lease.
  8. Use of the Premises: general office versus a medical office. This distinction is important if a tenant wishes to sublease space. Medical office is a far narrower use than general office and therefore, far more restrictive when looking for prospective sublease tenants.
  9. Option To Renew:
    a) Lease should spell out time period required for notice, (i.e 120 or 90 days prior to lease term ending.
    b) Lease must include some basis for calculating the new rent for the option period, it cannot say fair market rent at the time of the option.
    c) The tenant should be aware that the option period may allow landlord to bring current the CAM charges if they had been capped prior to the renewal term.
  10. Right to Relocate Tenant: Many leases allow the landlord to relocate tenant under certain circumstances. The lease should be clear that if this happens landlord will pay for the entire move and the new space is substantially the same or higher in quality than the existing space.

If you have questions, please contact Justin.

PHONE 404-261-0500

Tags: , , , , ,

About Justin Daniels

Justin S. Daniels is the trusted legal quarterback providing corporate and commercial real estate advice to fast growing privately held entrepreneurial businesses. He practices law as a shareholder with the firm Wagner Johnston & Rosenthal, P.C. Justin's corporate practice consists of representing businesses and business owners in all aspects of their operations from structuring new ventures, advising on acquisitions and divestitures and reviewing and negotiating key vendor, franchise, employment and customer contracts. He has represented a variety of clients in the manufacturing, retail, professional services, consulting and technology industries.