Can You Handle Your Next Lease Negotiation Alone?
Whether you own or lease commercial property, you should identify and know how to protect your interests before you sign your next lease. The following is not a complete checklist, but illustrates some of the key issues. How many of them are you familiar with?
1. Tax Increases. Most leases provide that a Proposition 13 tax increases (e.g., on sale of a property) are passed through to tenants. While it is unrealistic in this market for tenants to avoid such increases entirely, some protections may be negotiable, such as by limiting the amount of the increase, or restricting increases to those caused by certain sales.
2. Government Requirements. Who pays for government mandated improvements to the building? Leases should distinguish between those requirements which are not triggered by tenants specific use (the cost of which should be amortized over their useful life and only the amortized portion passed through to tenants as an operating cost), and those which are (for which tenants should be solely responsible).
3. Parking. Tenants should check that leases address their parking rights, including monthly rates, any reserved spaces or areas, and any visitor validation program.
4. Building Standards. To what standard must landlords maintain their buildings? Leases are often silent on this, and may be vague as to services (for example, what does Ajanitorial cover?).
5. Pass-Throughs. Gross leases should describe which building expenses landlords may pass through (generally, increases over the expenses incurred during a base year are passed through), how tenants shares are calculated (in a multi-tenanted office building), and what landlords administrative or management fees are. Tenants should always negotiate for a right of audit. Where tenants have an extension option, the Abase year should be updated upon exercise of the option.
6. Nondisturbance. If a landlord=s lender forecloses, leases which are legally junior or subordinate to the lenders mortgage are wiped out – they simply terminate as a matter of law. Tenants should always obtain from their landlord’s lender an agreement to recognize their leases and not to disturb their possession so long as they are not in default. Tenants often fail to ask for this protection, which is generally easy to obtain.
7. Self Help. If their landlord defaults, tenants usually do not have the right to fix the problem and deduct the cost from the rent. From landlord’s perspective, giving tenants this right is quite dangerous, yet it is included in some of the standard lease forms.
So, how did you do? Remember, if you are a landlord, that your broker is not an attorney and has probably told you so in writing, so don’t expect him or her to act as one. Remember too, if you are a tenant, that leases are never written in your favor. For landlords and tenants alike, having an experienced real estate attorney review your lease before you sign it can save you far more than it costs.