should you have a lawyer look over a commercial lease when investing in commercial real estate

To make sure you are legally protected, you should have a commercial real estate attorney assist you with the negotiations and review of your commercial lease.

Full Answer

Do I need a commercial real estate attorney for a lease?

A commercial lease is complicated, and there are many issues that need to be addressed. To make sure you are legally protected, you should have a commercial real estate attorney assist you with the negotiations and review of your commercial lease.

Is it better to lease or buy commercial property?

In the long term, owning commercial property is typically more economical than leasing. Leases are still popular because many businesses can't devote a significant portion of their capital to commercial real estate. If a business can afford to tie up assets in commercial real estate, purchasing is the better option.

What do you need to know about a commercial lease?

Key Takeaway: There are a number of lease terms you should be familiar with, including usable square feet, commencement date, grant of lease, covenants and rent abatement. Commercial leases can be complex. Below are four of the most frequently asked relating to commercial leases and their answers. What is a typical commercial lease deposit?

Do you need to review a commercial lease agreement?

While most residential leases use virtually identical boilerplate language, you must carefully negotiate and review a commercial lease to ensure that it contains everything you think it does. Do Commercial Tenants Get Any Legal Protections Outside of the Lease Agreement?

How long is a commercial lease?

Commercial leases are typically 3 to 5 years in length. That will feel like an eternity if you are stuck with a lease that is seriously skewed to your landlord’s advantage whether its with arbitrary management fees or ridiculous eviction clauses.

Why do landlords need a lawyer?

1. The very act of hiring a lawyer shows your landlord that you’re serious and can’t be easily pushed around or deceived. Landlords will be less likely to overstep knowing you have a lawyer on hand who can and will initiate legal action at the first sign of wrongdoing. 2.

What is lease protection?

It's the wording that you have to watch out for. A lease protects the Landlord, so it's favoured in their direction naturally as they are protecting their asset in which they receive cash flow, but a Tenant also has rights they need to be looked after.

Can you sign a multi-million dollar lease without a lawyer?

Anyone considering signing any kind of multi-million dollar long-term lease/agreement including entry/exit clauses without involvement of a lawyer or subject matter expert should not be holding such level of "authority to decide" ...

Do lawyers pay for themselves?

3. (Good) lawyers PAY FOR THEMSELVES. No really, they do. While having a lawyer may initially be an extra expense, he or she seriously has the ability to maximize your return on investment by saving you hundreds or even thousands over the years. Hiring a lawyer (should) cost less than one month’s rent. It’s therefore worth at least seeing if your lawyer can get you a better deal for the length of your lease.

Is commercial lease review affordable?

Commercial lease review services are more affordable than you think, especially if you consider a legal expert from Groundworks Commercial Leasing, which has been called the “UBER” of law firms because there is no overhead or mahogany desks to pay for. You just get quality advice quickly and affordably.

Why do you need an attorney to review a lease?

As we have eluded to in the previous points, perhaps the most important reason to have an attorney review your lease agreement is that commercial leases are usually written by the landlord (or more often their attorney), and this means that the contract will be worded in a way that is most favorable to the landlord.

How long does a commercial lease last?

Commercial leases typically run for three to five years or longer, and the tenant is usually required to provide a personal guarantee for the entire term of the lease. As personal guarantor, you lose all protection that your business entity may provide (e.g., LLC, Corporation), and you are personally on the hook for any unpaid rent, property damage, or other liabilities. Landlords usually do not want to remove the personal guarantor clause, but you may be able to negotiate some flexibility into it.

What is the agreement between landlord and tenant?

Before a commercial lease agreement is drafted, there is usually an agreement in principle between the landlord and the tenant. Important points are usually agreed to, such as monthly rent, square footage being rented, term and renewal periods, security deposits and upfront rent, tenant improvement allowance, and many others.

What are commercial lessee fees?

Commercial lessees are typically required to share the operating expenses of the commercial building or complex. For example, tenants may share the cost of security, parking lot maintenance, lighting and other electricity for common areas, etc. These fees can get very expensive, however, if they are dependent on how many tenants are renting space and several tenants suddenly move out. You should insist that your CAM fees be based on a percentage of total available square feet for rent, rather than total amount of square footage rented. You should also ask for a detailed report of what the CAM fees were for the previous year, so you have a good idea of what to expect.

What is a lease for a coffee shop?

The lease defines the commercial activities the tenant is allowed to participate in, but the language may be too narrow. For example, if you are opening a coffee shop, you might also want to sell hats, t-shirts, and coffee cups with your logo on them.

What is the most important contract to sign?

When you are starting a new business or moving to a new location, one of the most important contracts you will need to sign is a commercial lease agreement. Many business owners are under the mistaken impression that commercial leases are similar to residential leases, and that each contract contains pretty much the same language.

Why is commercial space different from residential?

This is because use of commercial space is very different from the way a residential property is used. Pretty much everyone rents an apartment as a place to live, while a commercial property is rented for some type of business use. But each business is unique, and there are many specific ways you may want to use a commercial space, ...

How much does a lawyer charge per hour?

Paying your lawyer by the hour is the most common method. In most parts of the United States, you can get competent services for your small business for $150 to $250 an hour. Most lawyers bill in six-, ten-, or 15-minute increments. Understand that these are the smallest "chunks" of time that the lawyer will bill for, ...

How to secure a flat fee?

To secure a flat fee or cap, dangle the prospect of more work ahead. Explain to the lawyer that yours is a small business with a limited budget. Especially if you're just starting out, mention that you'll have other legal needs in the future if your business succeeds.

Can a lawyer work for a fixed fee?

But if the assignment is open-ended—for example, it might involve extensive negotiations or a lot of redrafting—a lawyer won't agree to work for a fixed amount. Merely reviewing a lease is one thing—negotiating and drafting is quite another.

Can a lawyer delegate work to a secretary?

If your lawyer will be delegating some work to a less experienced associate, paralegal, or secretary, the delegated work should be billed at a lower hourly rate. Your fee arrangement should specify the rates for associates and paralegals if they will be in the picture.

Do lawyers have to be free from government regulation?

Unlike physicians, for example, who have insurance companies and the government monitoring virtually every move, lawyers are free from heavy-handed regulation. As a result, many choose to avoid bureaucratic paperwork, which they regard as a time-consuming nuisance.

How to research a commercial lease?

Steps for research include vetting the landlord, determining the building owner, researching zoning laws and getting a general feel for the area. Before you sign a lease, make sure you get an idea of the payment structure, your own personal risk exposure, the transfer structure, the landlord's desired holdover rate and any nuisance clauses in your lease. These are some important things to look out for, but keep in mind that typical commercial lease practices vary by state.

What is a commercial lease?

A commercial lease is required any time a business rents a commercial property for the purpose of conducting business from that location. Nishank Khanna, chief marketing officer at Clarify Capital, said a commercial lease agreement is a legally binding contract between a landlord and a business tenant.

What happens if you are late paying rent?

Late fee. If the tenant is late in paying rent, they will incur a late fee that is outlined by the commercial lease agreement. This can be a flat fee or a percentage of the monthly rent.

What is a modified lease?

To simplify the sheer range of leases that exist, most commercial leases are split into three categories. A gross lease covers all operating expenses, and that includes utilities. A net lease is less inclusive and usually does not cover utilities. A modified lease can be either a gross or net lease, with custom changes negotiated by both parties.

What is the Improvements section of a commercial lease?

This part of the commercial lease agreement lays out the types of improvements and upgrades that can be made to the space and who is responsible for the costs. Many aspects of this section can be negotiated.

Why is it important to sign a lease?

Signing a lease is an important step for any new business owner. Whether you're opening a store, moving into an office space or renting out facilities for production, at some point, you're probably going to have to reserve a space for your business.

What is the key to signing a business lease?

Research is the key to signing the right business lease. Specifically, look at the building owner, landlord, zoning laws, environmental expectations and nuisance laws.

How to change a lease you don't like?

Make a list of all the provisions you don't like as you're reading the lease. Send the list to your potential landlord. You might be surprised by how much they're willing to change.

What is the importance of understanding lease terms?

It's vitally important that you understand lease terms, how they'll impact you, and that you've negotiated the best deal possible for yourself before you sign a business lease. This begins with having a working knowledge of terms like "CAM" and arbitration clauses.

What is arbitration clause in lease?

These clauses state that both parties agree to settle any disputes through arbitration rather than litigation and going to court. Read the lease contract to see if the arbitration clause is mandatory. Make sure you have a right to participate in selecting the arbitrator and other decisions for arbitration if it's agreed to.

What to do if landlord drew up lease?

Even if the landlord drew up the lease themselves, don't assume that they got everything right. Check the start date, end date, rent, rent escalation terms, and any other special terms you've negotiated for. And above all, be sure you know what you're obligated to do under the lease's terms.

What is boilerplate lease?

Many landlords use "standard" or "boilerplate" leases that include general terms that are common to most leases, so make sure terms are included if you've negotiated something different. Make sure that the standard language and your special language don't contradict each other.

How long does a lease guarantee last?

Consider providing one for only a portion of the lease term, or negotiate for a guarantee that lasts for only six to 12 months after you terminate.

Can you ask for a CAM stop lease?

But you can ask the landlord for a CAM Stop lease so you'll only pay for an increase in CAM fees and property taxes above your initial lease year, often called your "base year.". The landlord might increase your base rental rate in exchange, but it takes a lot of the "mystery fee" out of the rent.

What is commercial lease?

A commercial lease agreement is a contract for a business to rent an office space or other business property from a landlord. The term 'commercial' simply means that the lease is for business activities rather than housing. A commercial tenant can be anyone from a sole proprietor with a small, growing business to a major multinational corporation.

What is the difference between commercial and residential leases?

On the other hand, a commercial lessee generally has no rights other than what is explicitly stated in the lease agreement .

What are the different types of commercial leases?

What Are the Common Types of Commercial Leases? 1 Net lease – The tenant pays all or part of taxes, insurance, or maintenance costs that would otherwise be incurred by the landlord in addition to the stated rent. 2 Double net lease – The tenant pays taxes, insurance, and rent. 3 Triple net lease – The tenant pays taxes, insurance, maintenance, and rent. 4 Percentage lease – The rent is based on a specified percentage of the tenant's sales or profits. 5 Fully-serviced lease – The rent includes utilities and other services that the tenant would generally pay for separately (common in office buildings with multiple tenants).

What should a lease agreement state?

The lease agreement should state the type of lease and the basis for calculating rent. The above terms are standard arrangements but, like other parts of a commercial lease, are subject to negotiation.

What is arbitration clause in commercial lease?

Many commercial leases include an arbitration clause for resolving these types of disputes. An arbitration clause requires the parties to use and accept the decision of an arbitrator rather than filing court proceedings.

Do commercial leases require renovations?

Renovation provisions are also common within commercial leases. Office tenants may need to move walls, restaurants may want to have a certain layout, and manufacturers may need to bring in special equipment. The tenant must have permission to do so under the lease. The lease should also specify who will pay for renovations.

Does a commercial lease include insurance?

However, some commercial leases pass this cost directly on to the tenant rather than including it within the rent.