There are many things to consider when entering into a commercial lease for your business. Each issue will influence the expenses of the business. It is essential that commercial tenants carefully review the lease and understand each term and condition stated in the document. All of the provisions in the lease are there for a reason.
The lease may require payment of interest on any monetary obligations not paid when due. Unless the agreement specifies the interest rate, interest accrues at the rate of 10% per annum after the breach, the specific date of nonpayment. Interest on past due rent is recoverable in legal action based on the commercial or residential tenancy.
2. Operational and Common Area Maintenance (CAM) Expenses
Charges for operational expenses and common area maintenance are frequently found in office building and shopping center leases. The Landlord passes on to each commercial tenant a proportionate share of these expenses. Often, Landlords use the pass through or triple net lease where the tenant reimburses the landlord for the tenant’s proportionate share of building operational expenses. The proportionate share is tied to the percentage of the premises that the tenant occupies.
The tenant needs to understand how the expenses are calculated. The Lease should specify:
a. How the tenant’s share of expenses will be determined;
b. The specific costs that are passed through to the tenant (for example, utilities, maintenance, improvements, security, janitorial, insurance, etc.);
c. How and when the charges must to be paid (for example, added to annual rent increase or billed separately);
d. How increases in expenses expense increases are charged to the tenant including the amount, frequency and manner of notice of increases.
3. ADA Compliance Charges
The Americans with Disabilities Act of 1990 ( “ADA”) prohibits private entities from discriminating on the basis of disability in:
a. Public accommodations which may be places open to the public, including hotels and lodging, food and drink establishments, sales and rental establishments, etc.
b. Commercial facilities, which are nonresidential places, which are not open to the public, but affect commerce including factories, warehouses and office buildings.
The purpose of the ADA is to ensure that “public accommodations” and “commercial facilities” will be readily accessible to and usable by disabled persons. As to places of “public accommodation,” the ADA generally requires removing architectural barriers to access by the disabled in existing structures and precludes alterations or new construction that could create obstacles to access by the disabled. Commercial facilities” are not subject to requirements regarding barrier removal. However, such facilities cannot alter existing structures or construct new buildings in a manner that would impede access by the disabled.
Landlords cannot eliminate their ADA compliance obligations by contract; nor can a lease validly shift all responsibility for ADA compliance to the tenant.
4. Condition of the Premises
It is recommended that the parties jointly inspect the premises to protect both the landlord and tenant. A joint inspection will decrease the possibility of a dispute at termination of the tenancy regarding responsibility for damages to the premise. The landlord and tenant should perform a walk through the premises together, noting in writing the current condition of fixtures, appliances, paint, flooring etc. Noticeable defects should be detailed on the inventory. This initial list is used to compare to the condition of the premises when the tenants move out. In the abundance of caution, the parties should consider taking video or photographing the condition of the premises.
5. Use of Premises
Often, the lease will state that the premises must be used for a specific purpose. If the property is not used for the stated purpose, the Landlord has the right to terminate the lease or sue for damages if the tenant does not comply with the permitted use. Restrictions on the use of commercial rental property are now regulated by statute.
Caution- Get Legal Advice before Entering into a Lease
These are just a few of the significant terms in a commercial lease. Many other items need to be considered to thoroughly understand the complexities of the lease. Contact us at (925) 463-9000 or send an email for more information about critical terms and concerns before you enter a commercial lease.
For answers to your questions about commerical leases and other leasing issues or for more information, please contact Lisa Wills of the Law Offices of Lisa D. Wills is a skilled real estate law attorney in Pleasanton, California. To speak with Lisa Wills, call (925) 463-9000 or send an email.