Key Considerations in Negotiating Commercial Leases

When starting a new company or moving your business to a new location, it is vital that you give careful consideration to many aspects of the lease before reaching any agreement. Some of these aspects, such as location, will have less to do with legal matters and more with whether that location will help or hurt your business’s attractiveness. (Of course, if your business does not intend to attract customers or clients to the location, that factor may be irrelevant except as it relates to you and your employees’ability to commute there.)

The following factors though could determine the welfare of your company for years to come:

• The term of the lease – An unproven company may need a short initial term so that the company does not overextend itself.
• Renewability – Can you renew after the first term of the lease and is it mandatory or optional? A short initial term with the option to renew may be the best option for a new tenant; the landlord will inevitably prefer a longer-term lease and an ability to lock the tenant in for several years.
•  Monthly rental amount – Typically the key focus of negotiation; if the lease is for multiple years, it is possible to negotiate an escalation – often a landlord may suggest an escalation based on “market rates”; it is preferable, that whatever rate that may be, it be ascertainable by a fair method of calculation and not, in any fashion, subjective.
• Clear delineation of responsibilities of Landlord and Tenant – Generally landlords bear responsibility under lease agreements for structural problems with a building such as issues with a roof or an HVAV whereas tenants bear responsibility for repairs to fixtures in the building such as kitchen equipment or wall units. These issues can certainly be the subject of negotiations.
• Additional fees – In the commercial setting landlords frequently seek to impose additional costs beyond the monthly rental amount such as CAM (common area maintenance) fees; these fees can also be negotiated.
• Default provisions – What happens if the tenant misses a payment and what additional liability may the tenant face in such circumstance?
• Use of the premises – Are there fixtures or equipment in a leased facility which the tenant will have the ability to use once the tenancy begins; this involves personal property on the premises which could be utilized by the incoming tenant.

This list represents some of the important issues a party to a commercial lease must face before entering in to a lease agreement. It is critical that you retain counsel to negotiate and draft a fair lease agreement to ensure your interests and the future success of your enterprise are protected.

Landlords or tenants should consult with attorneys who have expertise in the field.  The attorneys at Giddens & Gatton Law, P.C. possess great experience in New Mexico negotiating commercial leases. Giddens & Gatton Law, P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico. Call the office at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com.