What Is an Office Lease Review?
An office lease review ensures that a commercial lease agreement between a landlord, also called the lessor, and a person renting a commercial property, called the lessee, is legally valid and enforceable.
When renting a commercial property, it is helpful to know how to negotiate a commercial lease. This can ensure you get the most favorable terms for your budget. In order to advocate for your preferences effectively, you need to know how to understand the terms and conditions of an agreement, so you can present any desirable alternatives.
Here is an article that defines lease.
Types of Office Leases
There are several types of office leases, each one with a unique structure that affects the lease agreement. Your office lease review process will vary depending on the type of commercial office lease you have.
1. Single Net Lease
In a single net lease, the tenant agrees to pay the base rent as well as property taxes. Single net leases are also known as “N” leases, and they usually have a lower-than-average base rent to average out the inclusion of taxes.
The single net lease structure does not include maintenance fees, so expenses related to repairs, landscaping, and property management still fall on the landlord.
2. Double Net Lease
Double net, or net-net (NN) leases, are highly common among people in commercial real estate. If you are looking for a building lease to house your office space, then you will likely encounter double net leases offered by landlords.
In a double net lease, the lessee must pay for rent, property taxes, and commercial insurance premiums. The landlord still pays for maintenance expenses. In a double-net lease, the taxes and insurance premiums are under the landlord’s name, but as per the lease agreement, the tenant must pay them each month to keep tenancy.
3. Triple Net Lease
Triple net leases place the greatest responsibility for the lessee. The tenant will have to pay for all rent, taxes, insurance premiums, and maintenance expenses associated with the property. Because maintenance costs can often be higher than some tenants expect, triple net leases tend to be some of the most contested.
If you are offered a triple net lease, you should carefully review the average maintenance expenses of the property before you sign.
4. Bondable Net Lease
An alternative to a single, double, or triple net lease is a bondable net lease, which cannot be terminated before its expiration date. A bondable lease can also protect a tenant because it does not allow the base rent to ever be altered during the contract’s term.
Bondable net leases tend to be long-term, usually 10 years or more, and most beneficial for the owner. They can secure tenancy for an extended period of time and absolve themselves of all responsibility for paying major expenses.
However, a bondable net lease can be risky if the tenant is not 100% committed to leasing the space. It should, therefore, always be thoroughly reviewed and discussed prior to signature.
5. Full-Service Gross Lease
The straightforward full-service gross lease allows the tenant to pay a single, all-inclusive monthly rent to the landlord. As a result, the landlord pays taxes, insurance premiums, and any operating costs in relation to the building.
Sometimes, there may be certain expenses passed onto the tenant. The lease agreement will outline exactly which costs the tenant is responsible for during their lease.
6. Modified Gross Lease
A modified gross lease is similar to a full-service lease, but it allows the landlord to pass on some of the operating costs to the tenant. This can naturally put some tenants on edge, but there is a provision called an “expense stop” that can prevent the landlord from increasing the financial obligation too much.
For example, the landlord may say that the tenant could become responsible for their own utilities, but the landlord will still pay for building upkeep and maintenance. These terms and conditions are highly negotiable, so the tenant should not hesitate to discuss them further prior to signing an agreement.
7. Percentage Lease
In a percentage lease, tenants pay base rent as well as a percentage of their monthly revenue to the landlord. This type of commercial lease is less common among office spaces and more popular with shopping malls, restaurants, and retail establishments.
Key Terms to Look for in an Office Lease
As you conduct an office lease review, make sure you pay close attention to specific terms within the agreement. These terms will relate directly to your specific rights as a tenant. In any lease agreement, wording is essential for clarity. If any portion of your agreement seems vague or unclear, do not hesitate to request changes.
- Base rent. This is the amount that the tenant must always pay at a minimum. The base rent secures their tenancy in the building, but it does not automatically fulfill their obligations if they have signed a net-type lease that includes property taxes and insurance costs.
- Usable square footage. In shopping malls and commercial buildings, tenants often rent portions of the entire property. Their expenses can also drastically change depending on the square-footage of their leased area. You should be clear on how much property you actually rent, and what responsibilities you have solely in relation to that portion of the property.
- Rentable square footage. The rentable square footage of a property includes the usable square footage plus access to any common areas shared by other tenants.
- Turnkey. A turnkey property is one that is completely ready to move in. This means the paint, windows, doors, fixtures, and flooring will be suitable for business as soon as you sign the lease. A space that is not turnkey could require professional cleaning and designing on your behalf prior to operating.
- Use clauses. A use clause outlines how a tenant is permitted to use a space during the duration of their lease agreement. Pay close attention to any terms, restrictions, and obligations outlined in this portion of the document, as it will ultimately shape how you are allowed to conduct your business on the premises.
- Termination agreement. The termination agreement in commercial real estate leases give the tenant and landlord options for ending the rental agreement before its expiration date. Generally, tenants will have to pay additional rent and provide advanced notice if they want to end their lease early. Landlords cannot evict tenants without due cause, or without providing advanced notice. This depends on state laws and regulations.
Here is an article where you can read more key terms for commercial lease agreements.
What Types of Lawyers Can Review an Office Lease?
A real estate lawyer is the best attorney to perform an office lease review. They understand the ins and outs of commercial real estate, so they can help assure a contract is both legally valid and fair to the tenant.
Hiring a real estate lawyer is the best way to protect your business and financial future. When you are looking for an office space, you need to get business underway as soon as possible. When you have a lawyer review a lease agreement, you can identify any potential problems and raise concerns with the landlord before signing.
Here is an article with the ContractsCounsel guide to office leases.
Do I Need to Have My Office Lease Reviewed?
While some may not think an office lease review is necessary, it can certainly be beneficial. You may be comfortable with the terms you’ve reviewed and have no problems signing an agreement without formal review from an attorney.
However, if you do sign a contract without having it reviewed, you are obligated to fulfill your responsibilities as the tenant. Some contracts may not necessarily be favorable, but that does not mean they are legally void.
Tenants can still be required to pay expenses they were unaware of, even if they try to contest a lease in court.
An office lease review gives you greater peace of mind as you enter a professional relationship with your landlord. It also ensures that you are 100% in agreement with the terms, responsibilities, and requirements of your lease.
Here is an article where you can learn more about how to rent an office space.
Why Is It Important to Review an Office Lease?
Reviewing an office lease prevents misunderstandings, promotes greater communication, and offers greater legal protection.
You may not always be fully aware of what your rights are as a tenant; in that case, having a lawyer conduct an office lease review can educate you on what you need to know about renting a commercial space for your business.
Office lease reviews can prevent you from being placed in any unfortunate positions or from having to fulfill obligations that you did not really agree to. A commercial lease review ensures that the office lease prioritizes the tenant’s best interests.
Here is an article with a guide to commercial lease reviews.
How Long Does It Take to Review an Office Lease?
On average, it takes about a week to perform an office lease review if you hire a lawyer. A lawyer will be able to assess your agreement and ensure it fully aligns with your state’s commercial real estate laws.
You can let a landlord know that you are submitting a lease for review prior to signing. The attorney can also give you an estimate of when they will complete the review; time is of the essence, so real estate lawyers strive to always be expedient and help their tenants secure the greatest deals as quickly as possible.
Overall lease negotiation can take around 1 month, but this timeframe may be shortened by a professional review.
Here is an article with more information on reviewing a commercial lease agreement effectively as a tenant.
How Much Does It Cost to Review an Office Lease?
Lease reviews cost around $500, but prices can vary from several hundred to several thousand. Real estate lawyers can offer you a flat fee rate, or they may charge you per hour. Real estate lawyers tend to set their rates between $200 to $500 an hour.
Here is an article with a guide to commercial lease costs on ContractsCounsel.
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