There are seven little words that can have a huge impact on your commercial lease since this legal document is complex and multi-faceted. A lease contract contains the terms of your business, obligation and payments for the next 5,10, or even 15 years. Many seasoned landlords, lawyers, and commercial real estate agents who have negotiated hundreds of leases have found themselves in a legal battle because of their misunderstanding or interpretation of a few little words within a lease clause. Usually, leases are over 75 pages and are packed with words with important meanings that can often be overlooked or ignored. We’ve pulled those key terms out so you can spot them in your lease agreements.
Watch out for these seven little words that can have a significant impact on your lease:
Can your landlord remeasure the space during the term or any extension after that? If so, your rental payments could grow significantly without acquiring more physical space.
Is the word “reasonable” inserted throughout your document? This little word will provide “guard rails” to the tenant’s benefit if an issue requires legal interpretation.
Similar to reasonable, inserting “gross” beside negligence can improve a tenant’s rights with a landlord is unwilling to agree to negligence liability.
Additional rent is to be a flow-through expense from the landlord to the tenant, with the addition of a negotiated admin fee. Unfortunately, errors, hidden profit centers, improper definitions or rebates can sometimes pass over the tenant. An audit and working with the right professional can ensure that you are paid the correct expenses, and that the right rebates are applied.
Typically, the landlord’s expert provides their professional opinion or the final determination when a matter needs to be resolved between the landlord and a tenant. So by inserting “third party,” a bias or conflict is avoided.
What happens if a tenant renews and the parties cannot agree on an extended rate? “Arbitration” allows for a process for the landlord and the tenant to determine a price.
If a tenant triggers a default scenario, leases are full of penalties and costs. However, not all occurrences of default are the same and do not deserve the same severity of the penalty. Unfortunately, defaults are typically grouped and can trigger the same consequences. Penalties such as accelerated rent, increased payment, or lease termination should only be associated with: material defaults (which should be defined in the lease) i.e. non-payment or habitual non-payment of rent, safety violations, and not for not taking out the garbage or not receiving notice.
Now that you are in the know, you can make note of these seven words. As we’ve discovered, these words can have a huge impact on your lease. So take notes so you aren’t caught by surprise down the road.