Understanding your lease is crucial to protecting you and your business. Here are five common commercial real estate lease clauses you’ll want to understand before you sign:
This clause provides either the tenant or landlord the option to renew. Often tenants have the right to stay in the space or leave at the end of the lease term.
Death and Disability Clause
This clause is especially important for businesses that can’t operate without a crucial employee. These individuals could be doctors, dentists, veterinarians, architects and attorneys. This clause enables the business to terminate the lease if the principal dies or becomes disabled.
With this clause, the tenant has the right to transfer its interest in the lease premises. An assignment or sublet clauses should provide the answers to the following questions:
- Can the tenant transfer the tenant’s interest in the premises?
- If so, what notice (if any) must the tenant provide the landlord?
- If the tenant must provide notice, what right does the landlord have (if any) to deny the transfer?
- Does the tenant have any obligations to the landlord after the transfer?
This clause often favors the landlord, who want assurance that a transfer will not leave them without a tenant. Tenants who will likely sell their businesses as an exit strategy will want to negotiate this clause.
Landlords often require a personal guarantee from the business owner. A personal guarantee means that the guarantors will pay rent and other fees if the business fails. Landlords will negotiate for this clause when they invest large upfront costs into a tenant’s business. Tenants will want to limit personal guarantees during lease renewals.
This provision gives the landlord the right to relocate the tenant within the same premises. In our experience, many landlords will remove this clause. If a landlord refuses to remove this verbiage, tenants should clearly define terms to minimize disruptions to their business during the relocation.
We hope you have a better understanding of commercial real estate clauses you may see on your lease. To learn more about commercial real estate leases, please check out our other blog posts.