Commercial Lease Agreement Review Lawyers in San Diego County
Most businesses in Southern California need a commercial location from which to operate. Some own their location, but for the majority of companies, it is more practical to lease space from another commercial property owner. When this arrangement is entered into, the commercial lease agreement is one of the most important contracts for both the landlord and the tenant.
For the tenant, the lease agreement determines the amount of rent and other expenses they will be responsible for to maintain a commercial location, which in turn helps determine how much revenue they need to generate in order to be profitable. The commercial location is also pivotal in establishing a business identity and creating a positive work environment for employees.
For the landlord, the lease agreement not only provides the assurance of a predictable income from a commercial space for a certain length of time, it also specifies many aspects of the arrangement, such as what the tenant is allowed to use the property for, types of improvements they can make, what expenses the tenant is responsible for, and many others.
A commercial lease agreement involves elements of business law, real estate law, landlord-tenant law, and “build to suit” construction/modification contracts. These are very complicated legal documents with numerous aspects and issues that must be addressed. For this reason, those who enter into a commercial lease should, at the very least, have the agreement reviewed by an experienced attorney. More ideally, you should have your own attorney draft the agreement or at the very least have significant input with regards to its contents.
At Garmo and Garmo, LLP, we have over 40 years of experience assisting clients with commercial lease agreements and all other types of business, real estate, and related legal matters in San Diego and throughout Southern California. Our attorneys have extensive knowledge of these areas of the law, and we work closely with our clients, taking the time to listen and understand their specific needs and putting our in-depth experience to work to ensure that their interests are fully protected. Whatever type of legal issue you are facing, we are here to help provide the most practical, effective, and cost-efficient solution.
Important Considerations with Commercial Lease Agreements
There are many important issues that must be taken into account when negotiating a lease. For example, many times, a business will struggle because they cannot afford the lease they agreed to. This is especially true when a tenant has agreed to a long-term lease. The business may be doing well, but five years down the road, lease rates could increase tremendously (according to the terms of the lease) and begin to hurt the business. This is where the importance of negotiating a lease you can afford comes into play.
There are several terms and conditions that should be addressed in a lease agreement, some of the most important include:
Of course, among the primary concerns for all parties to a commercial lease agreement is the amount of rent that will be paid. However, the amount the tenant will pay each month is just one aspect of the rent conversation. As we touched on earlier, the term (i.e., length of time) the lease will be in effect is another critical area that needs to be addressed. Most landlords prefer a longer-term lease that provides stability and predictability for the income they will receive from the property, and they are often willing to offer a significantly lower rent payment in exchange for a multi-year commitment. But tenants need to understand the financial commitment they are making, and also the fact that they will usually be personally responsible for any unpaid rent and other expenses if they have to break the lease.
Other areas that should be covered with regards to rent include the security deposit and what it can be used for (this should be in accordance with California state law), rent increases and when they may occur, options to extend the lease, and “out” clauses, just to name a few.
Fees for Common Area Maintenance
Rent is not the only expense the tenant will usually be responsible for. The tenant may also be required to pay common area maintenance (CAM) fees, which help cover expenses that benefit all tenants, such as parking lot maintenance, security, shared utilities, and many others. Landlords and tenants should be on the same page regarding exactly which fees the tenant is responsible for and how these fees are determined. Tenants should pay particular attention to whether CAM fees are set based on how much commercial space is available for rent, or how much commercial space is currently rented. If it is the latter, CAM fees can increase significantly if the building or complex has a lot of vacancies.
Use of Space
It is important to spell out exactly what space is being leased, and what the tenant is allowed to use the space for. Parties should also address the use of common areas such as the parking lot, building entrance, elevators, stairs, and restrooms. A tenant may run into trouble if the allowed use of the space is too narrowly defined and restricts their ability to branch out into other areas of business in the future. On the other side of the ledger, landlords want to be sure that there are reasonable limitations on the use of space that protect their interests and do not interfere with the right of other tenants to conduct business.
Many tenants will want to have an “exclusive use” clause in the contract that restricts a competitor from renting space in the same commercial location. For example, if one space in a strip mall is being rented by a pizza shop, the owner may insist that no other pizza shops be able to rent space in that mall. A landlord may agree to a request like this, but they may refuse a broader exclusivity clause that would restrict another type of food business from renting space, for example.
Many tenants need to make modifications to the space they are renting in order to make it suitable for business operations. The commercial lease agreement should fully address any improvements, modifications, and fixtures that will be necessary for the tenant to operate. The agreement should also state which party owns these improvements after the lease expires. Generally, the landlord retains ownership of permanent improvements such as new carpets, walls, and tiled floor, while the tenant may be able to keep movable items such as seating, cabinets, and signage.
There should be a clause in the contract that addresses how a dispute will be handled if one arises. Litigation is time-consuming and expensive, and for these reasons, it is generally in everyone’s best interests to use some form of alternative dispute resolution (ADR) if there is a legal conflict. The two most common types of ADR are mediation and arbitration. Your attorney can explain the differences between these two methods and help you decide which one would be best to include in your commercial lease agreement.
Contact an Experienced San Diego Commercial Lease Agreement Lawyer
There are a lot of important areas that need to be addressed in a commercial lease. By working with an experienced business and real estate attorney, you can ensure that you are able to negotiate terms and conditions that will be beneficial to you throughout the life of the lease.
At Garmo and Garmo, LLP, we are here to assist with commercial lease agreements and all other legal needs you may have. For a free consultation with one of our attorneys, call our office today at 619-441-2500 or send us a message through our online contact form.
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