ENTERING INTO COMMERCIAL LEASES can be challenging due to the complex nature of the documents. One most always benefits from the assistance of counsel. A commercial lease governs the landlord and tenant’s legal relationship for years after the lease is signed and guides the parties into the future for events such as improvements, rights of first refusal, extensions, options, assignments and subleases. It is essential to clearly delineate the lease terms and discuss the terms that will not likely be at issue for years to come.
Before the parties execute a lease, the landlord and tenant may execute a letter of intent, which is generally intended to be a nonbinding agreement containing the proposed material terms that will form the basis for the lease. It is wise for parties to involve their counsel in negotiating the letter of intent to ensure parties’ intentions are met. A letter of intent will often include terms such as the premises square footage to be leased, the duration of the lease, the rent and security deposit, options to renew, termination rights, the allocation of costs for tenant improvements, and other terms deemed material by the parties.
Once the parties sign the letter of intent, negotiating the actual lease agreement begins, which is one of the most important components of the process. Often the landlord will begin process and the tenant will draft revisions until the parties have agreed upon a final document agreeable to sides. The more important lease terms negotiated are: (1) premises use and any restrictions; (2) rent and any rent adjustments; (3) the common areas and any restrictions regarding their use; (4) operating expenses; (5) the insurance the parties are obligated to carry; (6) the cost, responsibility, and any restrictions regarding improvements; (7) indemnities; and (8) the parties’ rights and obligations with respect to assignments and subleasing.
After the lease is signed and the tenant has occupied the premises, it is well-advised to keep counsel apprised of notice requirements for termination or expiring lease terms as well as any rights of first refusals and extension rights.
The parties are well advised to have competent counsel on retainer to continually monitor the ongoing relationship between the parties and to give itself sufficient time to negotiate and draft any documentation regarding the lease provisions to ensure these rights do not expire.