BOHEMIA, N.Y., Feb. 11, 2014 /PRNewswire/ -- Landlords often ask if a lease is OK to send, while tenants want to know if it is OK to sign. "In both cases, I usually provide the same response," says Steve Taitz, managing partner of the Long Island Law Firm of Roe Taroff Taitz and Portman, LLP. "Will you be OK with everything in the lease if anything goes wrong?" When dealing with any lease, and commercial leases in particular, the most important issue is understanding what is in the lease. Taitz has identified the Top Commercial Lease Questions that can help landlords and tenants in determining whether a lease is right for them to sign.
Top Commercial Lease Questions
Whether you are the landlord or the tenant negotiating a commercial property lease, you should be aware of these common questions that set commercial leases apart from traditional residential lease agreements.
- Is the lease gross or net?
- What are the additional costs or additional rent associated with the lease?
- What will be the proportional share of additional costs?
- What does the lease call for besides rent?
- What common commercial lease provisions will be included?
Gross vs. Net
Commercial leases generally come in two flavors: gross leases and net leases. Gross leases require a commercial tenant to pay one price each month to the landlord. In a gross lease, generally the landlord will be responsible for all costs and activities associated with the maintenance of their property.
Net leases are a little bit different. A landlord charges "rent," but also requires that the tenant pay its proportionate share of various costs, often including building maintenance and operating costs This enables the landlord to understand what his income will be from the rent.
The landlord does not need to guess about escalating costs associated with the building because his tenants will share in the actual costs of maintaining the building. Tenants will absorb all increases, and presumably share in any decreases, to the costs of operating the building. In theory this provides the landlord with a true fixed income from rent.
Additional Costs or Additional Rent
Additional costs, generically called "additional rent," typically include real estate taxes, general liability insurance, and common area maintenance, often referred to as "CAM" in a lease. CAM is the generic catch-all for building maintenance items that can include capital improvements, insurance, administration, waste removal, landscaping, cleaning, snow removal or a variety of other items. It is important that all common area maintenance items are specifically defined in the lease and that any other charges for additional rent are spelled out.
With net leases, each tenant will typically a proportional share of the additional rent. If a tenant occupies 100 percent of the building, that tenant will be responsible for 100 percent of the additional rent. If there is more than one tenant then each tenant shares in the additional rent or costs based upon the amount of space each tenant occupies. So, if a tenant only occupies one-quarter of the building the tenant would typically pay 25 percent of the costs of additional rent.
Utilities may be separately metered or may be shared proportionately. If one tenant is sharing space with another tenant who may use more than its proportionate share, this is an issue which should be addressed with the landlord. For example, if one tenant is a "dry" store, that is only has a sink and toilet, but has 50 percent of the building and the other tenant is a laundromat which has 50 percent of the space, it might not be reasonable to expect the first tenant to pay half of the utilities such as water, gas, or electric.
Common Commercial Lease Provisions
There are a variety of other issues that may come up in commercial leases which you would not typically see in residential leases. Such provisions, which may appear in the basic lease document or be appended in a rider to the lease, include but are not limited to:
- Responsibility for repairs.
- Landlord's right to re-locate tenant.
- Landlord's right to approve signage.
- Tenant's rights (if any) of subleasing or assigning the lease.
- Subordination to landlord and mortgagee.
- Competition, restrictive covenants, and exclusivity.
- Estoppels certificates.
- Permits and licensing.
- Personal guaranty.
- Financial statements.
- Owner's limitation of liability.
"While a commercial lease agreement appears to focus on the square footage, rent and utilities, the reality is that there are a myriad specific requirements of both the landlord and tenant that must be met in order to reach agreement between both parties," says Taitz. "While there are many commercial lease forms, there is no 'one-size-fits-all' final lease. A strong commercial lease that contains provisions that are fair to both parties often requires an attorney familiar with creating and editing such a document."
About Roe Taroff Taitz and Portman
Roe Taroff Taitz and Portman, LLP provides a wide variety of legal services to Long Island. Our attorneys have served the residents of Suffolk County for more than two decades. Comprised of attorneys, legal assistants and administrative staff, the firm provides support at various levels of legal expertise. Our resources are available to both businesses and individuals looking for experienced legal representation. The firm's primary areas of concentration include civil litigation, creditor's rights law, trust and estates issues, estate planning, admiralty claims, business counseling and real estate matters. For more information, please call 631-475-4400 or visit http://www.RTTPLaw.com
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