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Lease Agreement Review

Updated: October 20, 2023
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The lease agreement review is the assessment of a formal document between the lessee and the lessor (or tenant and landlord) on all processes and terms in the contract to be executed. The Lessor-Lessee connection is referred to as the Landlord-Tenant relationship in many leases and are used interchangeably. Since business owners frequently rent premises to run their operations, leases are widespread in every industry. The lease agreement outlines the parameters to which both parties are bound and the repercussions should either party default on or violate any key clauses.

Regardless of whether you are the lessor/landlord or the lessee/tenant, your lease must be examined by a qualified attorney. In a net lease, the lessor/landlord pays all costs, such as property taxes, utilities, common area upkeep, etc., while the lessee/tenant only pays a predetermined sum or "gross" amount. In some cases, the lessee/tenant may pay a portion of property taxes, insurance, and maintenance costs in addition to rent.

In a triple-net lease, the lessee/tenant pays the lessor/landlord a base rent, usually calculated as a dollar amount per square foot leased. The Lessee/Tenant shall pay its fair share of the triple-Net expenses in addition to the base rent.

These costs consist of taxes, insurance, and upkeep costs related to using the lessor's/property. The amount of rent levied for the property should occasionally be reviewed by landlords to maintain the property's profitability. On the other hand, the tenant wants the rent to stay reasonable. A commercial leasing attorney will negotiate the best possible terms.

Typically, rent reviews can occur at any time and can be specified for any duration, depending on the contents of the lease. The tenant and landlord should agree on the terms from the beginning. Although they can be specified for any duration, they frequently follow a three to five-year review cycle during which parties can renegotiate the rent. It is common for commercial leases to include rent escalation clauses that outline how and when rent will be increased over the lease term.

A renewal option specifies the parameters of the prolongation and allows the lessee/tenant to extend the lease for another term. It is typically negotiated and agreed upon at the time of the signing of the initial lease. The option to renew the lease is only allowed if the Lessor/Landlord elects to exercise it.

The peace of mind of being able to extend the lease for a defined period at either a set or market rate is provided- by a renewal option for the lessee/tenant. By exercising the option, the Lessee/Tenant can assess its operations and decide whether it wants to keep working with the Lessor/Landlord for another period.

The renewal option also allows the lessor/landlord to continue their business relationship with the tenant/lessee and encourages them to act honestly for the initial term.

What Do Lawyers for Lease Agreement Review Do?

Real estate attorneys often handle commercial lease reviews. They are knowledgeable about landlord-tenant law as a result. They can assist you in locating provisions that may be poorly worded or inappropriate for your company.

Commercial real estate attorneys can advise the company that best meets your needs. They can even review the lease agreement to ensure it includes all the clauses necessary for your business. Landlords could try to incorporate provisions that benefit them rather than you into a commercial lease agreement. For instance, if economic conditions change, some landlords would even incorporate stipulations allowing them to terminate a lease. Negotiations go both ways so, as a tenant, you can negotiate and include provisions that benefit you, or have a lawyer negotiate on your behalf.

Hence it is crucial to have an attorney analyze your business space contract before you sign it if you're a tenant. The landlord can try to add provisions that put you in a risky situation or are unsuitable for the kind of business you run. Moreover, to understand what you're getting into before signing the contract, a real estate lawyer may ensure incorporating important clauses and the language is clear.

Additionally, they will look at the provisions to see if they would be too demanding for your company or raise the risk. For instance, a lease's early termination provisions can make it difficult for you to leave as soon as you need to.

The price of a commercial lease agreement is determined by the type of business, the lawyer, and the lease type. The cost to review a lease depends on the complexity of the agreement and the attorney’s fees. Ask the lawyer beforehand about their costs so you can budget accordingly.

This cost could be considerably less for small enterprises with lower-value leases. Since it requires more time and experience to arrange a business lease than a residential one, real estate attorneys often charge more for commercial tenant evaluations. Smaller companies typically don't require as thorough of a commercial lease review.

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Important Provisions to Examine in a Commercial Lease Agreement

Below are some important provisions you must examine in a commercial lease agreement.

  • Insurance

    Many agreements stipulate that both the owner and the tenant must carry insurance. Ensure it is specified in the lease and verify that the landlord's proposed level of coverage is appropriate. Again, if this conversation results in talks, a lawyer might be beneficial.

  • Assignment Alternatives

    Typically, a landlord wants the person signing the contract to be the renter. However, you should know the possibility of subletting or assigning the lease if your company's requirements change.

Why Get a Lease Agreement Review?

Below are some reasons you must get a lease agreement review.

  • Recognize the effects of lease incentives

    To get a potential tenant to sign a lease, landlords occasionally provide incentives like an initial rent discount for a predetermined duration. At first glimpse, this may appear to be a great offer for you.

    In many cases, these inducements and financial incentives to furnish the space will cost you more in the long run. Since landlords are in the business of turning a profit, they frequently try to recoup these upfront reductions by charging inflated rent (also known as "face rent") during the lease term.

  • Uncertain obligations can cost thousands of dollars.

    Tenants of commercial properties are typically required to leave the premises in the same state they found them in when they started using the property. In some situations, this may include dismantling fit-outs and fittings, depending on what your lease says. It seems okay overall, but you should pay close attention to a few details in these clauses.

  • A skilled and independent set of eyes

    You will gain new insight into your lease by having it reviewed by an outside party. It is advised that the landlord and the party entering the lease each obtain independent legal counsel. It offers a knowledgeable, unbiased set of eyes, and items that could save you a lot of money over the lease's term may be discovered.

    Additionally, it indicates that all parties are working toward a solution rather than one party benefiting more from the arrangement. You should consider hidden hazards while negotiating (or renegotiating) a lease because they could cost you money if you don't.

Key Terms

  • Base Rent: A predefined sum that the lessee must settle every month. Base rent operates separately from operating expenditures and earnings.
  • Lease Term: No matter the kind of lease, every contract will obligate you to pay for the space for a set number of months.
  • Net Lease: In this contract, the lessee is only responsible for paying property taxes and utilities. The landlord settles payment, including repairs, maintenance, and insurance costs.

Conclusion

An individual's commitment to pay back a debt or other ongoing expense owing to another party is a personal guarantee. This assurance is typically provided by a shareholder or Lessee/Tenant entity member. The Lessor/Landlord frequently requests a personal guarantee to make sure that someone will be held accountable for the contractual obligation owing to the Lessor/Landlord. So if you are looking for a competent attorney to help you with your lease agreement review, our experts at ContractsCounsel can assist you to ensure you never face any legal troubles.

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