There are many issues to understand regarding a commercial lease for your business. The more you understand about the terms and conditions of the lease, the better you are able to plan and avoid surprises that could cost your business a lot of money.
1. Competing Business Use
Frequently, in a commercial lease, tenants want terms that restrict the types of businesses that the landlord can lease to other tenants in a commercial building or shopping center. It is very common for a commercial tenant to want an exclusive right to operate a specific type of business on the premises and to require exclusion of competing businesses from the building or shopping center. For this type of provision, and exclusive use and noncompetition clauses must be expressly stated in the lease. If there is not a written restriction regarding competing uses of the building or shopping center, the landlord can lease other units for any legal purpose without regard for the interests of existing tenants.
2. Who Pays for Improvements and Fixtures
When a business rents commercial space, the business often wants to customize the premises for its fit its requirements. Commercial leases often provide terms that address modification of the premises to suit the tenant’s specifications. The lease should be clear about who pays for the construction. The lease may include terms for an allowance for tenant improvements where the landlord agrees to give the tenant a negotiated, fixed dollar amount of improvements for the space. Anything above the allotment is paid for by the tenant.
3. Ownership of Improvements at Lease Termination
The lease should clearly state who owns the improvements when the lease terminates. Generally, unless the lease states otherwise, fixtures on rented premises belong to the owner of the real property at the end of the lease term. Many commercial leases state that all tenant improvements and fixtures become the landlord’s property at the end of the lease term. Fixtures are items of removable personal property that a tenant has attached to least real property or land for business purposes in a way that they are considered to become part of the real property. Examples include a display counter, or a built-in refrigerator. The fixture must meet certain criteria to allow the tenant to remove the item as a trade fixture. If the item does not meet this criteria, it will become the property of the landlord when the commercial tenant vacates the premises.
4. Maintaining and Repairing the Premises
In commercial leases, there is no implied warranty of habitability and no explicit statutory repair obligations. The duty to keep the premises fit for their intended use and in good repair is usually allocated by the terms of the lease. Unless the lease makes a different allocation, the landlord is responsible for repair of the common areas. Typically, the cost of maintenance is apportioned among the tenants.
When does a Commercial Tenant need Legal Advice?
An experienced real estate lawyer is a good person to have on your team. The attorney can aid a commercial tenant in understanding the terms of the commercial lease, negotiate clauses in the commercial tenant’s best interests and help the tenant avoid expensive mistakes that can cost the business lots of hard earned dollars.
Lisa Wills, of the Law Offices of Lisa D. Wills, is a skilled attorney in Pleasanton, San Ramon, Livermore and Danville CA helping Commercial Tenants understand their rights and protect themselves. Please contact Lisa Wills by email at the Law Offices of Lisa D. Wills or call us at (925) 463-9000.