Negotiating a Favorable Lease

Who drafted your lease? Chances are, it came from your landlord or your landlord’s rental agent. It is probably printed and is six or more pages long. A few blanks were filled in with your company’s name, some dates, the rental amount and the lease was presented to you for your signature.

It’s a familiar scenario. And if you signed it, you undoubtedly have a lease that strongly favors the landlord.

Review

Next time this happens, don’t be intimidated by the printed form. Review the lease carefully with your lawyer and be prepared to challenge lease terms that are unclear or unfair.

Unless business space is tight in your community, you should be able to remove coercive language and add clauses that make the lease more balanced in your favor. Objectionable wording can be crossed out; desired wording can be inserted. If you or your landlord initial these changes, they’re perfectly valid. For more extensive revisions, have your lawyer draft an addendum which can be attached to the lease.

Assuming that you and the landlord have agreed on the amount of rent you will be paying, here are some other lease terms to think about.

Amount of Space

How much space are you leasing? If you are leasing only part of a building, and are paying rent based on the number of square feet you will be using, you need to know how the landlord is computing the square footage.

Find out whether the square footage figure includes a portion of the areas used in common with other tenants such as hallways, restrooms, elevators and storage space. It’s a good idea to attach a drawing to the lease showing the exact location of your space. Are parking spaces being set aside for your business? Are you being charged for them? Make sure all of this is specified in the lease.

Delays

What about occupancy delays? What happens if your space isn’t ready on time? Can you cancel the lease? Will you receive credit from the landlord for extra expenses that a move-in delay might cause your business?

Who Pays

Who pays for what? The lease should state whether you or the landlord are responsible for property taxes, utilities, insurance, maintenance, repairs, janitorial service and trash collection. What happens if there is a problem with the plumbing, or electricity or air conditioning? Who’s responsible for taking care of it?

Services

What improvements and upkeep service will the landlord provide? If the landlord is going to install partitions in your space, or paint it before you move in, or make other improvements, this should be spelled out in the lease. For anything other than simple improvements, attach a set of detailed plans and specifications.

Try to make the landlord responsible for upkeep of the landscaping, parking lot and hallways. If the landlord is going to wash windows in your building or provide janitorial service, say how often these services will be performed.

And if the landlord is furnishing heating, ventilating and air conditioning, make sure the lease states what hours and on what days these services will be provided. If your business will be operating evenings or on weekends you want to have adequate heat in the winter and air conditioning in the summer during all business hours.

Renewal

Do you have the right to renew the lease? If you have a three-year lease, try to reserve the right to renew the lease for two additional three-year periods. State what the rent will be during the renewal periods or include a formula for determining it. Avoid a clause that says the rent during renewal periods will be negotiated. This is too vague; it can lead to legal problems if you and your landlord can’t come to terms.

Most renewal clauses require you to give the landlord notice in writing at least three to six months before the lease expires if you wish to renew or extend it. If you forget to send the notice, you may find yourself looking for new quarters before you’re ready to do so. To avoid this provide that renewal will be automatic unless you send a notice of cancellation to the landlord within the specified time period.

Increases

How are rent increases computed? It’s quite common for landlords to require higher rent during each year of the lease. You have more certainty if you state the exact rent, for example, $1,000 per month for the first year, $1,100 for the second year and $1,200 for the third year.

Some landlords prefer to use a formula instead, such as one that requires you to pay for prorated increases in taxes, utilities and other operating costs. If you use this kind of formula, look carefully at what the base year will be for computing these increases. There can be some problems if you’re moving into a new building which isn’t fully occupied during the first year. Operating costs during that year may not provide a fair basis for future rent increases. Some landlords tie rent increases to the Consumer Price Index.

Other Tenants

What businesses will share the building? If you are not renting the entire building, consider lease restrictions on who else may rent there.

The landlord may agree to exclude any other tenant with a business similar to yours so that you’re not faced with nearby competition. You may also negotiate a clause that restricts the landlord from renting to a business which, while not competing with you, is compatible with your operations.

Landlord May Enter

When can the landlord enter your premises? Many standard leases allow the landlord to come into your premises at any time to make repairs or inspect the premises. Usually the land-

lord will agree to modify such a clause.

It’s reasonable to provide that the landlord can enter your leased space during normal business hours, unless there’s an emergency, such as a burst pipe or electrical hazard. Since repairs can be disruptive, you might also provide that the landlord will consult with you before making repairs and will schedule them for a mutually convenient time.

Sublease

Can you sublease? Suppose you outgrow your space before the end of your lease, or find a better location. Do you have the right to sublease the space to another business? Many leases say that you can only do this with the landlord’s permission, even though you’ve found a suitable tenant. The solution is to add language such as this: “Landlord will not unreasonably withhold consent to a sublease or an assignment of this lease.”

Signage

What kind of signs can you have? You’re likely to need a sign to identify your business and attract new customers. But leases commonly say that any sign must be approved by the landlord in advance. You can get around this by having the landlord approve your signs at the same time that you sign the lease. If you do this, attach a drawing or photo of the sign to the lease so that there can’t be any argument later.

More Space

How about additional space? Reserve the right to pick up other space in the building if you want to expand your business. This can be done through a right of first refusal which says that before any other vacant space in the building is leased to some one else, the landlord must offer it to you on the same terms.

You can have a similar provision for purchase of the building. Here, the landlord would have to give you the chance to buy the building before selling it to someone else. You would have the opportunity to meet any bona fide offer.

Improvements

Can you make and keep improvements? Your lease may state that you can’t make improvements or alterations to the premise without the landlord’s permission. Meet this clause head on by submitting your plans to the landlord before you sign the lease, and don’t sign unless you get approval. Also, provide that the landlord will not unreasonably withhold consent to future improvements.

Watch out for lease language that prohibits you from taking your improvements with you when you leave. Make sure that you can remove any attached items that can be taken without damaging the property such as air conditions units, light fixtures, shelving and cabinetry. Consider a provision giving you access to the premises before the lease begins so that you have a head start on installing improvements.

Insurance

Are the insurance requirements reasonable? Insurance provisions are often the most complicated part of a lease. The lease may call for overlapping coverages which can be costly, or there may be gaps in coverage which leave you uninsured in some instances. Have your insurance agent review the lease to eliminate overlaps and gaps, and recommend a reasonable insurance program for you and the landlord.

Insurance provisions in the lease are often one-sided, requiring only the tenant to carry insurance. A lease should require the landlord to maintain casualty insurance so that funds are available to promptly rebuild or repair the building if it’s destroyed or damaged by a fire or windstorm.

Type of Business

What kind of business can you conduct? Leases usually limit their use of the premises to a specific business. This is OK, but be sure that the business is defined broadly enough to cover future changes in your business use. Be sure you can add new products and services without running afoul of the lease language.

Cancellation

Can you cancel the lease? Suppose the building is damaged by a fire and your landlord is slow to repair it. Anticipate this problem by reserving the right to cancel the lease and move elsewhere if repairs are not completed within 45 days.

If you take the time to carefully consider your lease before signing it, you can avoid aggravating and costly problems afterwards. If you have any questions or doubts, consult your own attorney before signing or renewing a lease. v