Whether you are a commercial landlord or a Massachusetts business owner renting the premises, it is absolutely critical to take special care when you draft and closely review the commercial lease. Mistakes or oversights at this juncture can expose you to legal liability, create years of uncertainty, threaten your interests, and cost thousands of dollars in the long run, not to mention cause lots of headaches that could have been avoided.
The Importance of a Good Commercial Lease
Both commercial tenants and their landlords need to remember that the commercial lease will codify their rental arrangement. It is, after all, a legally binding contract. If there is merger clause in the lease – as there should be – then it will rarely matter if the parties agreed to different terms than what appears on paper. If one provision ends up being unworkable or extremely costly to follow, it still controls and the party would break the lease if they fail to comply with it.
There is no way around it: A commercial lease can make or break a business, particularly a small business, and indirectly help or hurt the landlord's finances.
A good commercial lease will set down the rules for the rental relationship. It will take a balanced approach between the landlord's rights and the tenant's interests so that everyone benefits from the transaction. It will also encompass as many different issues as possible, so that a commercial lease dispute would be effectively resolved by simply referring to the lease, without resorting to costly litigation.
What a Well-Drafted Commercial Lease Can Include
Landlords who draft a commercial lease for their premises need to protect their interests. However, it is also in their interests for their tenant to succeed and flourish so that they can continue to make their rent payments. This often requires a nuanced and sensitive approach.
While every commercial lease is different and should include terms and conditions that are unique to the particular needs of the property and the tenant, good commercial leases generally include:
- A description of the parties to the lease as well as the property and how it will be used by the commercial tenant
- The lease term, as well as how it can be renewed
- The rental amount, including how and when it is to be paid
- Whether the commercial lease can be assigned or sublet to a different commercial tenant
- Who covers the costs of utilities, like electricity and water
- The security deposit, including how and when it will be returned to the tenant and what can be deducted from it
- A description of the common areas of the premises, like hallways and parking lots, as well as rules about when the landlord can access them, and who is responsible for them
- The insurance coverage obligations of both the landlord and the tenant
- What modifications or improvement the tenant can make to the premises, including what is to happen to them when the lease ends
- Details about each party's legal rights and obligations if the premises is destroyed or severely damaged, like if there is a fire
- How the commercial lease can be terminated or modified
- What happens if either the tenant or the landlord defaults on the lease, as well as what the other party can do about it
- How a party in breach of the lease can cure their breach before it becomes a default
- How the landlord can enforce the lease
- What circumstances allow the landlord to evict their commercial tenant, typically for failing to pay rent
- What happens if the commercial tenant holds over, or continues to occupy the premises after the lease has expired
- An indemnification agreement, where the commercial tenant agrees to hold the landlord harmless for most types of losses
- A force majeure clause that explains what rights the tenant has (or, more commonly, does not have) against the landlord in the event of a major natural disaster
- A notice provision, which stipulates how each party must formally communicate with one another
Additionally, because commercial leases are a type of contract, they should also include many of the most common contractual provisions.
However, just throwing all of these provisions into a commercial lease does not make it a good one. These leases should be drafted carefully to both protect a landlord's rights and facilitate the tenant's business success. Striking that balance requires a unique approach every time.
Commercial Tenants Should Take Their Time When Reviewing a Commercial Lease
Especially for new or small business owners, signing a commercial lease is one of the most exciting stages in opening up shop – often the last stage before everything starts to go into motion.
But not taking the time to review the commercial lease can shackle you and your company with onerous requirements and unreasonable demands by your landlord that make running a business both needlessly difficult and miserable.
Unfortunately, understanding how a commercial lease can hamstring a business is extremely difficult to do without having reviewed many of them in the past. For example, commercial tenants in snowy Massachusetts are unlikely to appreciate the significance of being responsible for maintaining the parking lot. They are even less likely to notice signs in the commercial lease that indicate that the landlord intends to be so hands-off that they will be useless in an emergency.
Taking the time to get an experienced real estate attorney to review the commercial lease that your landlord has drafted is the best way to avoid making a huge mistake at this very important step in your business venture.
Massachusetts Real Estate Lawyers at the Katz Law Group
Both commercial landlords and business owners benefit immensely from having experienced legal advice when they sign the lease. The contracts and real estate lawyers at the Katz Law Group have been drafting and reviewing commercial leases in central Massachusetts for decades.
Contact them online or call their law office at (508) 480-8202.