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A Lease is a contract - it may be written or oral and the
terms are negotiable, often highly negotiable. The things that you can
negotiate and how much you can negotiate depend upon
- how motivated the landlord is to find a tenant
- how badly you want the location
- are there many locations of this type available
- are there many businesses competing for the location
- do you or the landlord want a long term agreement
- do you or the landlord want a short term agreement
A lease is generally signed for one or more years. Short-term agreements
are called rental agreements and can be terminated with a 30 (thirty)
day written notice.
Generally, a lease must be written to be enforceable in a court of law.
Verbal agreements may be found binding but a judge will have difficulty
with special claims and any criteria other than standard lease expectations.
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- Who should sign? (reps?, husband/wife?, partners?, officers of a
corporation?, authority/proxy?)
- Define the space. (Common space; useless space; outdoor)
- Start date. (tenant access vs, tenancy, construction/setup)
- Ending date. (becomes monthly if tenancy continues after date)
- Option to renew.
- Right to Expand.
- Rent and "net" terms.
- Security deposits. (interest bearing; hold in escrow)
- Improvements by landlord. (becomes landlords property)
- Making improvements as tenant. (permission; code)
- Removing improvements when tenant leaves.
- Zoning laws, Permits & Restrictions
on use of space.
- Required Insurance.
- Subletting space or assigning your lease.
- Landlord's right to enter the space.
- Canceling the lease.
- Mediation or arbitration.
- Look for fine-print issues:
taxes, utilities, maintenance of premises, repair to interior, repairs
to electrical/heating/ventilation/mechanical systems/air conditioning
(HVAC), janitorial, window washing, trash removal, landscape, snow
removal, parking lot, security, etc.
- Option to purchase.
- Right to withhold rent.
- Selling the
building clause
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Other common clauses include:
- Exclusive clauses - Gives the lessee
exclusive rights to offer goods and services in the complex. (for example:
it may limit the center to one pharmacy or one liquor store only).
- Audit clauses - In a percentage lease where part of the rent is tied
to sales, the lessor is allowed to audit the books, records and tax
returns of the lessee; or in the case where part of the rent
is a proportion of utilities in a shared space it allows the tenant
similar access to the landlords records.
- Merchant Association clauses - Requires tenants in shopping centers
and malls to participate in center-wide promotions, landscaping and
other expenses.
- Sign clauses - Limits the size, style, placement, color, lighting
and similar options for signs. This is a common clause in commercial
leases. It may include window decorations, banners, temporary signs,
sandwich boards and such. It may additionally allow for preferential
placement or size for larger tenants or for additional fees.
- Additional Building clauses - This allows the tenant to build additions,
or change building features such as windows, entrances, pipes and conduit.
- Hours of Operation clauses - May restrict or set hours and days for
all tenants to assure conformity for customers. This is common in a
complex or mall
- Methods of Operation clauses - May limit or proscribe methods of operation
or restrict the tenant from opening competing businesses in a certain
radius. Sometimes these clauses have been succesfully challenged in
court.
- Recapture clause - Allows the landlord to cancel a percentage lease
if a predetermined sales volume isn't consistently met by the tenant.
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Rent
Leases generally state the rent as a monthly term. A practice
you may encounter is where the rent is stated as a total rent for the
life of the lease: Rent for your 3 year lease is
$36,000 payable in monthly installments of $1,000 per month due the 1st
of the month with a late charge of 5% after the tenth of the month.
Key Money
A common practice in Carmel is Key Money. On Ocean avenue, the
main strip in Carmel, landlords require an up front fee of $50,000 for
the right to get the lease or in other words, obtain the key.
Net Leases
Rent may be set in additional ways depending upon local custom
and strength of negotiating position.
Net leases charge a basic rent plus more depending upon who pays for
real estate taxes (property taxes), insurance, and repairs and maintenance.
There are five common ways to modify rent.
Gross Leases
- The tenant pays a flat fee each month. The landlord pays
for all operating costs for the building including real estate
taxes (property taxes), insurance (insures the building
against property damage caused by fire, flooding and weather as
well as negligence, vandalism and claims against the landlord
brought by people injured on the property), repairs and maintenance,
and utilities.
Gross leases commonly require the tenant (renter) to pay the
utilities (utilities are HVAC, electrical and water). If you are
in a building with other tenants you should require a separate
meter or ask for copies of the utility bills each month.
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Net Leases - The tenant pays
a base rent monthly plus some or all of the real estate taxes.
If you are renting a part of the building you should make sure
that the portion you are being charged is fair.
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Net-net Leases - The tenant
pays the base rent, real estate taxes and the landlord's insurance
on the building or the space you occupy proportionally (this is
in addition to your own liability insurance).
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Net-net-net Leases ("triple
net") - The tenant pays the base rent plus the landlord's
real estate taxes, insurance, repairs and maintenance. (utilities
may be included or not) This is common for small businesses.
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Percentage Leases - These
are common for retailers in a shopping mall or shopping center.
The tenant pays the base rent plus a percentage of gross income.
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Other common lease modifications are based upon changes in the business
and tax climate over time and the length of the lease. Common modifications
include:
- built in rent increases; built on planned increases or variable factors
such as the CPI (consumer price index)
- increase in taxes, maintenance or insurance; negotiate a cap in this
case as these cost can be unpredictable and vary widely)
Remember, in a lease everything is potentially negotiable.
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