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When leasing commercial property, it’s easy to overlook critical details in the expensive lease agreement. Due diligence exists so you (and your attorney) have the time to proactively mitigate problems now rather than when they’re discovered later. This is a part of being a smart business owner.
In New York City alone, thousands of commercial leases are signed yearly, forming the backbone of many small and medium-sized businesses. However, many of these leases leave room for costly legal issues because of common oversights. Landlords and tenants should respect the implications of having unclear or misunderstood lease terms. Understanding common mistakes can help you make better decisions. Let’s look at four critical areas to watch out for.
Common Terms and Rental Agreements
A frequent mistake is not understanding the lease and its renewal terms. The lease length determines how long you can stay in the property under the current agreement. Knowing when the lease starts and ends may seem basic – but it can affect your business planning and budgeting if you fail to understand those terms fully.
Renewal terms are just as important. These decide if and how you can continue renting the property after the current lease term ends. Again, this seems trivial, but for tenants who are renovating a commercial space that cost can be upwards of $300 a square foot. Tenants frequently make sizable investments into the property (even if your building’s owner is sharing the cost) but are still forced to leave even when they intend to stay long-term. You may need clarification on whether you can stay and at what cost. Make sure you understand these terms before signing the lease.
Another aspect often overlooked is how and when the rent can be increased. Most leases have terms that allow the rent to go up over time. Rent is usually based on set criteria like market rates or a fixed percentage. Ask questions and make sure you’re comfortable with the rent increase terms. It’s also crucial to understand any caps or limits on these increases (these are sometimes dedicated by state or local ordinances). Check if some specific conditions or events trigger these rent hikes. Understanding these elements can help you plan your finances better and avoid surprises.
Repairs and Subletting
Lease agreements often include terms about repairs and maintenance. It is important to know who is responsible for what elements of repairing the space you’re in. Sometimes, the landlord takes care of major repairs but expects tenants to handle minor issues—and defining what constitutes either is equally essential.
In rare situations, the tenant might be responsible for all repairs and not understanding this could create headaches down the line. Determining who is responsible for what leads to disputes if they aren’t carefully defined. It’s crucial to have clear terms about maintenance and repair responsibilities.
Another issue is subletting and assignment terms. Subleasing means renting out part or all of the leased space to another party. Assignment is when you transfer the lease to someone else. These options are helpful if your business changes and you need to move. However, some leases restrict or forbid subletting and assignment. It’s important to know what you are permitted to do under your lease before this ever becomes a possibility. This helps you maintain flexibility in using the leased space. Also, be aware of any fees or penalties for breaking these terms. Lastly, understand the landlord’s rights in approving or denying these arrangements, as their decision can impact your business plans while still being limited by various laws and regulations.
Contact Drucker & Mattia, PLLC
Understanding the lease agreement may seem elemental but it’s vital for renting commercial property. Mistakes cost time and money. For more guidance, schedule a free initial consultation with our firm. We can help you review and understand lease agreements and ensure you make informed decisions for your business.
Daniel Bipes
