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Real Estate and Business Law

Commercial Lease Agreements

Commercial Lease Agreements

I would say here is the “long and short” of it, but if you have ever reviewed a commercial lease agreement there is nothing short about it. They are generally long and for most business owners, one of the most tedious aspects of starting a business or expanding. Business owners just want to get the space and start brewing beer or selling furniture, or whatever their exciting trade may be. On the landlord side, leases need to be tailored to the tenant’s business to minimize risks that may be particular to that business. This may include certain tenant allowances or exclusive use provisions to prevent competition with another tenant. Each commercial lease needs specific attention to these critical details.

While the key terms such as rent, term of the lease and extensions are important, it’s often the proverbial “nitty-gritty” boring terms that can make or break a lease agreement. A mentor once cautioned that there is no such thing as “boilerplate” language. Every provision in the lease deserves attention.

For example, one of the most ignored, yet impactful provisions in a lease is the indemnity provision. The purpose of indemnity provisions is to shift the risk or loss to another party. Drafting clear and unambiguous indemnity provisions is critical to any lease. Often landlord are unaware of just how much risk they can shift to the tenant and on the tenant side, tenants are often unclear about their responsibilities if certain events occur triggering obligations by tenant to landlord. A clear understanding of the provisions is the first step. Next, considering how courts will interpret and enforce those provisions allows a landlord or tenant to negotiate accordingly. While not thrilling, negotiation of this provision to be sure the indemnity is practical and enforceable will likely save all of the parties headache down the line.

By engaging a lawyer early to review a letter of intent or initial drafts of the commercial lease, parties can set the foundation for a solid landlord / tenant relationship and minimize risk wherever possible.

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