Negotiating Commercial Leases: Considerations for Landlords and Tenants (Part 2)

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The second part of our 2-part series for commercial real estate leases will discuss 3 more clauses you should take extra care in reviewing and negotiating.

1. Assignment and Sublet

Under this portion of the lease, the Landlord’s goal is to be in control over what the Tenant can do with the property when involving a third party. Conversely, Tenants are trying to ensure they have an exit strategy if they no longer need to rent the property and to limit their liability after any transfers.

The Key deal points Landlords and Tenants need to review are as follows:

  • Defining what is considered an assignment.
  • Permitted assignments and subleases negotiated by Tenant (such as mergers and acquisitions or the transfer of shares at a certain threshold).
  • Identifying the limit on the number of Sub-Tenants.
  • Profit-sharing – if the Tenant is required to share any profits from lease assignments
  • The standard of Landlord consent: sole v. reasonable discretion.
  • The Tenant’s release from liability.
  • Any assignability of certain Tenant rights (e.g., options).

2. Repairs and Maintenance

Poorly worded or ambiguous language under these clauses often lead to disputes between Landlords and Tenants. It is important that Landlords and Tenants clearly identify what repairs and maintenance are included (if any) under the lease.

Landlords will be seeking to limit their repair obligations and to pass any such costs onto Tenants. Conversely, Tenants will be seeking to limit their obligations to non-structural elements and exclude big-ticket items such as a roof. It is critical that the lease plainly outlines the scope of each party’s responsibility for repairs and maintenance.

The Key deal points Landlords and Tenants need to review are as follows:

  • Each party’s repair and maintenance responsibilities:
    • Typical Landlord obligations: common areas, building systems, roof, exterior walls, elevators, foundation, parking lot/garage.
    • Typical Tenant obligation: premises, HVAC system within premises.
  • What repair costs the Landlord can pass through to the Tenant under any additional operating expenses under the lease.
  • Tenant’s remedies for Landlord’s failure to perform its repair and maintenance obligations.

3. Landlord Services/Common Areas Maintenance

It is critical to identify what (if any) services will be required to be provided by the Landlord, and what services the Tenant is responsible to retain. Under these clauses, Landlords are aiming to provide only standard services and charge Tenants anything non-standard requested by a Tenant. Conversely, Tenants are aiming to have any and all services covered under the lease. Types of services that should be addressed include: Elevators (passenger, freight), Security, Cleaning and Maintenance, Utilities, including HVAC, Telecommunications, and Overtime services.

The Key deal points Landlords and Tenants need to review are as follows:

  • Whether or not the services will be included in rent versus what they will be charged as additional rent.
  • The frequency and hours of providing the services.
  • Remedies (if any) for the interruption in services that continues for a determined (negotiated) period of time.

Contact us for more information on commercial leases by e-mailing us at info@mnklawyers.com.

This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.

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