What to Look Out For in a Commercial Real Estate Lease, written by guest writer, EN Jio
Trying to understand commercial property lease terms can seem like navigating a mine field – there is plenty of new terminology and industry jargon to comprehend. When it comes to negotiating, some landlords may try to pass off a lease document as “a standard lease” that all tenants must sign. In many instances, unknowledgeable tenants could end up agreeing to terms that are less than favorable – which are in fact not standard policy. Be wary of the following clauses:
- Early Termination – this clause often allows landlords to terminate the lease early and reasons for the early termination may or may not be given. Resist the inclusion of such clauses in your negotiations.
- Default – be wary of onerous clauses that allow a landlord to evict a tenant if the rent has not been paid within a week of the due date. While it may seem standard, it is more typical for leases to stipulate written notice be given to tenants at least 14 days before any consequences are enacted. Negotiate for required written notice in the case of default.
- Redevelopment – try to avoid redevelopment clauses that allow a landlord to terminate the lease in order to redevelop or renovate the premises.
- Indemnity – be aware of indemnity clauses that indemnify the landlord against claims for loss or accidental damage by the landlord. Be sure to check your insurance policy to see if an indemnity clause on your commercial property could violate your policy.
- Handover dates – the handover date is the date the premises are turned over to the tenant to begin the installation of fit-outs, before the fixed commencement date of the lease. Avoid leases that allow a landlord to alter the handover date without compensation – as you could find yourself incurring substantial costs if you are delayed or caught unprepared for fit-out construction.
- Make good – a make good clause generally requires the tenant to leave the premises in good condition upon departure. This usually includes the removal of any fit-outs that were installed by the tenant during the term. If your premises come installed with fit-outs, negotiate to alter the “make good” clause to a general expectation to leave the premises in good condition and repair.
There are plenty of other clauses and terms that can be negotiated – from who is responsible for whose legal fees as well as any upkeep, repair and maintenance costs. Many businesses will find that they have much more success negotiating lease terms to help reduce their costs rather than trying to get a landlord to come down on price. A tenant broker service can help with the lease “legalese” – they’ll help you get a better understanding of what your options are.
Find your next commercial property lease with Tim Green Commercial – the experts on finding great office space in Sydney CBD and surrounds.