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5 mistakes made when leasing commercial property

June 12, 2012

Leasing or renting an office space and making a commitment for 3, 5 or even 7 or more years can be daunting.   However, enlisting the services of a qualified commercial real estate broker and real estate attorney can not only make the process much more streamlined and stress free, it can save you a lot of money by preventing mistakes and creating opportunity.

Five common mistakes business owners make when signing a lease to rent or lease commercial property are:

  • Failure to consult a qualified real estate attorney: We recommend that you spend $300 to $500 and have an attorney spend an hour or two (good luck) on your lease.  It can save you thousands later.  The following mistakes are ones we have seen in our work.  ANY LANGUAGE SUGGESTED IN THE FOLLOWING PARAGRAPHS SHOULD BE APPROVED BY YOUR REAL ESTATE ATTORNEY.  WE ARE NOT ATTORNEYS.
  • No provisions for adequate renewals and/or rate cap on rent for that term:  Most landlords will give you at least some form of renewal option.  A renewal option is just that, a renewal “option” .  The tenant’s option to renew the term.  What do we and our “attorneys” like to see in the language?  Don’t let the landlord invalidate the renewal option due to “any” tenant default under the lease.  Confine that to “monetary default not cured within 15 days of the default event”.  Also, on renewal term rate, if the Landord wants “then market rents”, see if they will add “not to exceed 110% of the rent during the last month of the term”.  If you have an expense stop or base year, see if you can get that adjusted to the renewal date.
  • No provisions for expansion, First Right of Refusal on Adjacent space: It is difficult to know if you will need to expand your space during the term of the lease.  However, if you have a First Right to refuse a lease on any adjacent space to the leased premises, you may be able to expand in steps and prevent a situation where you are forced to move when the company grows.
  • No cap on controllable expenses: Face it, landlord’s expenses increase over time.  The largest portion of those costs is uncontrollable (property taxes, property insurance and utilities).  However, costs associated with management, common area maintenance and some repairs are controllable.  Ask for a 10% cap every 3 years on any controllable expenses and make sure your lease allows for an audit of all expenses which the Landlord passes thru to you.
  • Unclear or incorrect Landlord/Tenant responsibilities: Be sure your lease is clear as to who is responsible for the cost to maintain/replace the walls, foundation, roof, mechanicals, common drives/areas, fencing, insect and termite control, utility fees and connections, etc.  See if you can get an warranty for the term of the lease on the HVAC and plumbing systems.  The landlord probably won’t do the entire term, so settle for 180 days or so from commencement of the lease.  If you take the space “As-Is”, be sure you check out all the mechanical systems for condition and adequacy given your use.

Have questions about your lease?

Need to lease commercial property, industrial or office space?

Feel free to contact us at Centermark Commercial Real Estate at 713.461.4750.  Or email to EricHughes@CentermarkRealEstate.com.