Tenant Leasing 101, Part 4: Reviewing the Business Terms

June 20, 2014

In any type of real estate lease – retail, office, restaurant, industrial, or any other kind – the business principals of the tenant should take the critical step of reviewing the business terms within the lease. 

 

The tenant’s broker should review the lease to confirm that its terms comply with the agreed-upon letter of intent, and an attorney should do the same as a regular part of the legal review.

 

Even with these two layers of review, the business principals are the only ones that truly know what the day-to-day operations will be within the leased space.  These principals are the only ones who can serve as a backstop to make sure that the lease terms will not conflict with how they intend to use the space.

 

Here are some key provisions to double-check, even after the attorney and broker have signed-off: 

 

  • Double-check the rent calculations to see if they are correct.

  • Review the square footage, unit number, street address, and location on any site plan.

  • Check the additional rent sections to see what ‘rent extras’ are added.

  • Review any floor plan exhibit and construction provisions.

  • Understand the default section to see if anything will be problematic.

  • Compare the signage rights against the intended signage.

  • If you want to run sales in the parking lot, see if this is allowed.

  • Check to see if kitchenettes, coffee bars, and other desired amenities are permitted.

  • Technical specs for IT closets, power, and cooling needs should be included.

  • Security doors and systems for safety and confidentiality may be needed.

 

A tenant also needs to carefully review a prospective lease to make sure that its business strategy is reflected accurately within the agreement.  A conscientious tenant will analyze a lease form to make sure the lease is aligned with its business plan, which may include checking the following:

 

  • Term length, extension rights, and termination, contraction, and expansion rights.

  • Permitted uses.

  • Assignment and subleasing.

  • Delays in delivery of space and holding over.

 

A lease agreement generally is a tricky document to negotiate even in the most ordinary of circumstances.  A lease requires the parties to negotiate terms that will bind landlord and tenant for many years into the future.  By taking the time to review the business terms, a tenant will be able to better protect itself in one of its biggest financial obligations and keep its focus on the success of its business. 

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