Your company’s office or retail lease is an essential foundation for building a strong business. No business owner or management team wants to waste precious sales-related time addressing matters months or years into a lease that should have been covered during the initial lease negotiations. Without clearly defined terms, rights and responsibilities, your company could end up in a situation where it is contractually required to pay a significantly higher amount to the landlord than it originally contemplated.
Below are four key points that your company must clarify prior to signing its next lease.
Premises
What is your company leasing from the landlord? Is it a building, half a floor in a Buckhead high rise, or a retail suite?
Regardless of what it is, your company will need to thoroughly define the leased premises. Without clearly defined leased premises, your lease will not be focused and stable, as it should be, to protect your company.
Will the landlord construct any improvements to the premises prior to lease commencement? If so, the lease must explicitly describe the improvements and the date when they will be completed.
If the improvements are not completed by the agreed-upon date, and your current landlord has already re-leased your existing premises, will your new landlord pay all of your expenses for a temporary location? This scenario should be addressed in the lease.
Rent
Your lease should clearly state the monthly rent paid to the landlord. Rental payments should include increases in rent and when those increases are triggered. Is your company paying rent only, with the landlord paying insurance, utilities and taxes, or, is your lease “triple net”? A triple net lease means the rent is actually net to the landlord, with your company also being responsible for its own insurance, utilities and pro-rata share of taxes.
If triple net, your company’s annual budgeting must also account for the estimated additional costs, which the landlord will likely treat as additional rent.
Maintenance responsibilities
The lease likely contains several responsibilities that are yours alone, as tenant, during the lease term.
For example, those responsibilities may include regular upkeep of the premises (e.g. changing light bulbs and restroom cleaning) to more significant responsibilities like the HVAC system and plumbing that serves your premises.
Often, leases are silent altogether on a landlord’s maintenance responsibilities. This is an important opportunity in your lease negotiations to legally require the landlord to maintain everything relating to the leased premises that are not the tenant’s responsibilities.
Remedies
Landlord’s remedies are steps the landlord takes to protect itself and the premises it is leasing to your company, if your company defaults under the lease. Importantly, your lease should require the landlord to provide your company with written notice of a breach and an opportunity to cure the breach prior to the landlord exercising its default remedies. This protection is essential to limit any non-intentional breaches of the lease.
Conclusion
Proper pro-active planning can drastically reduce unneeded expenses down the road. The discussion points above are a sampling of many key issues that surface in lease negotiations.
By addressing these matters, together with many other issues that your attorneys can help bring to your attention, your company will ensure that its lease for new premises creates a solid foundation on which your business can continue to grow. Furthermore, addressing these discussion points will ensure that your next lease is balanced and affords your company proper protection from some common lease pitfalls — protections that will save your company time and money in the future.
ROBERT H. TURNER III is an associate at Gambrell & Stolz LLP. His practice areas are real estate, mergers and acquisitions, business and secured transactions. Reach him at (404) 223-2218 or [email protected].
