COMMERCIAL LEASE AGREEMENTS 고객님들 필수 내용
COMMERCIAL LEASE AGREEMENTS: TENANTS BEWARE!
Commercial lease agreements are very different from residential lease agreements. Under California law, residential lease agreements are highly regulated and there are mandatory protections for residential tenants that landlords have to follow. However, California law provides limited protections for tenants with commercial leases. Therefore, it is very important that commercial tenants negotiate favorable lease terms and closely review commercial lease agreements. The following are four provisions which commercial tenants should be aware:
1. Maintenance, Repairs, Expenses, and Fees
Unlike residential lease agreements, commercial landlords have no obligation to repair or maintain commercial property and will often write into the commercial lease agreement that tenants are responsible for repairs. Additionally, it is also common for commercial lease agreements to have provisions where tenants are responsible for property taxes, utility costs, and other expenses related to using the commercial property.
Tenants need to thoroughly review the commercial lease agreement to understand their responsibilities under the lease agreement, or else they are at risk of violating said agreement.
2. Options Clause
Few commercial tenants know that they have the ability to negotiate on a commercial lease agreement allowing them to extend the lease period. For example, if the original lease agreement is for a 5-year period, with this option, the tenant now has the ability to exercise the option to extend the lease for additional years.
Why is this beneficial? Options provisions limit the amount the rent will increase after the lease expires. All too often, when a lease expires, the commercial landlord will significantly increase the rent, causing the business to suffer financial difficulties. Ultimately, the business may have to move if the new rent becomes unaffordable. However, an options provision can protect the tenant and limit the amount of rent the landlord can request to be increased.
3. Assignment / Subletting Clause
Business owners sell businesses all the time, but the most common barrier to the sale of a business is the commercial lease. If there is a possibility that the business will be sold in the future, make sure the ability to assign the commercial lease to the new business is available. Additionally, sometimes business owners want to sublet a portion of the commercial property to subsidize rent. If this is the business owner’s plan, make sure there is a sublet provision allowing the business owner to sublet the premises.
4. Termination Provisions
Businesses fail all the time. However, just because a business fails, it does not mean you have no obligation to continue paying rent. This is especially true if the commercial lease includes a “personal guarantee” provision that allows the landlord to hold the individual responsible for the rent payments. Tenants do not want to be stuck having to continue to pay for the commercial lease, even after the business has closed. Make sure the commercial lease agreement includes a provision allowing the termination of the lease agreement if the business fails.
Commercial leases are complex. Many do not know they have the right to negotiate favorable terms with the landlord before signing the commercial agreement. It is highly advisable to either use a commercial tenant broker or an attorney to help you negotiate and review commercial leases.
Eric W. Ching is a real estate & business attorney with Ching & Seto, APC.
Eric W. Ching
Real Estate & Business Attorney
6650 Lusk Blvd., Ste. B-203
San Diego, CA 92121
Office: (619)-663-8821
Direct: (858)-257-7130
