A commercial real estate lease is the document that governs the legal relationship between the landlord and tenant. The short statement is that, in exchange for the payment of rent and following the other terms of the contract, the landlord delivers the premises for the tenant’s use. Much must happen between the time each party contemplates a lease and its execution. Each party must closely review the document before they have signed.

Usually, the landlord drafts the commercial real estate lease, but this does not mean they set the document in stone. The tenant does not simply have to sign what the landlord hands them; they can suggest changes to the document and sign a lease that reflects their situation and needs.

Each party to a commercial real estate agreement should get help from an experienced real estate lawyer before they sign a lease agreement. Understanding each legal term in an agreement and what they may mean for you is crucial. A Seattle commercial real estate attorney can help protect your interests before you sign something as meaningful and essential as a lease agreement that can tie you to the other party for an extended time. Having a lawyer review a commercial lease agreement is critical because they possess the legal knowledge to identify potential pitfalls and protect your interests. They can carefully examine the document, ensure there are all necessary provisions, and advise you on any unfavorable terms that may put your business at a disadvantage.

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The Importance of a Commercial Real Estate Lease Agreement

If you are a tenant, you are deciding on a location for a store, office, or facility that is crucial to your business. Real estate issues have plagued companies in the past, and problems with leases have forced businesses to move or even go out of business entirely. Thus, your efforts in the contract formation stage are essential to provide the long-term framework for the relationship between the landlord and tenant.

Understand the Key Terms of the Agreement

Every commercial real estate lease will have several crucial terms. While every part of a commercial lease is essential, some clauses may be even more critical. It is helpful to take the time to understand each key term before signing the agreement because you will be bound by what is in the document. Key terms in a commercial real estate lease include:

• The duration of the lease
• Whether there is an option to purchase the money or the ability to rent to own (and the terms of any potential sale of the property at the conclusion of the lease)
• The payment to the lessor and when and how it is to get paid
• Which party is responsible for paying for the utilities and repairing the property (several types of commercial leases address this area differently. One common type of lease is a triple net lease, where the tenant must pay for things like utilities, property taxes, and maintenance on top of their base monthly payments)
• A termination clause that allows either party to end the lease on the occurrence of certain conditions (from the tenant’s perspective, they do not want a termination clause in favor of the landlord that is too broad because the landlord can force them to move against their will)
• Restrictions on other types of businesses nearby (for example, a daycare owner may not want the landlord to lease property to an adult store in the nearby vicinity)
• Whether there is an option to renew the lease at the election of the tenant without having to renegotiate the terms entirely
• Whether the tenant can sublease the property (or part of it) to another tenant)

There may be other terms that you may insist on as part of the commercial lease agreement. For example, you may see no restrictions on the landlord leasing nearby property to other competitors. If you own a store, the last thing you want is to be near a competitor because that can cut your potential business. You may insist that specific terms get added to the lease to protect your business and interests. Otherwise, consider doing business with another landlord.

Every Part of a Commercial Real Estate Agreement Matters

You should never make the mistake of assuming that there are unimportant parts of a commercial real estate agreement or that certain parts of the agreement are less critical because they are in small print. If there is any dispute over a commercial real estate agreement, a court will go straight to the exact language of the document to reach a decision. Any analysis of a contract begins with the plain language of the agreement. If the language has a clear meaning, the court will use it to decide the case. Every single word and comma in a commercial lease agreement is critical.

The court will only try to interpret intent and use extrinsic evidence if no plain meaning is evident from the terms of the document. In many cases, it does not matter what you may have thought when you signed the contract. All that matters is that you signed the agreement and may never get the chance to explain your thought process to the court. Even if your intentions come into play, the court will analyze your actions during and after signing the contract as a sign of what you may have been thinking.

Therefore, it is crucial that you thoroughly review every single part of a commercial real estate agreement before you sign it. You never know when a stray word or comma can come back to haunt you by completely changing the meaning of a critical part of the agreement. You should also review every part of the agreement because you never know where key provisions may be (even if they are not in the part of the agreement where you may think).

The Due Diligence Process Is Crucial in a Commercial Real Estate Transaction

You must closely review the agreement and perform due diligence in the background before completing the deal. Due diligence involves several steps that dig deeper into the transaction to determine whether you want to proceed. If you are leasing commercial real estate, you want to know what you may be getting as part of the deal. If you are the lessor, you should learn more about the buyer because you are trusting them to make good on their part of the transaction.

You may undertake the following steps as part of the due diligence process:

• Examining the property itself and the title to determine whether any easements allow others the right to use the property
• Reviewing the local zoning laws and proposed regulations to determine whether there may be any restrictions on your right to use the property as you wish
• Reviewing the lessor’s financial documents pertaining to the property to ensure that you will not be taking on any financial issues
• Performing an environmental assessment and reviewing regulations to determine whether there are any potential problems or restrictions (lenders will likely require an environmental suitability assessment before allowing you to obtain a mortgage)
• Conducting a title search to determine whether there is anyone else with a competing ownership claim on the land or any liens entered against the property
• Reviewing any leases that the lessor may have with other parties to learn their terms and the potential streams of income from owning the property 
• Learning more about the lessor, how they do business, and their reputation in the area (you will be involved in a significant transaction with this person or company, and you need to understand more about them before you complete the deal)
• Reviewing any potential issues with the lessor’s prior compliance with regulations and laws

The lessor also wants to know more about the lessee, specifically whether they will be responsible tenants and continue paying their rent and expenses when they are due.

Consider hiring a commercial real estate attorney to help you with the due diligence phase of the transaction.

Negotiating the Terms of the Lease

Depending on your specific transaction, there may be a highly customized lease. Some larger landlords may have standardized agreements that they expect you to sign without any ability to negotiate. However, if you are willing to spend money to lease a property, you may have more leverage than you think in the leasing process. You always have the right to propose your terms of the deal, and if you are going to be a large tenant or intend to sign a lengthy lease, you can change some of the language in the lease agreement for the lessor’s consideration. The larger the lease, the more bargaining power you may have in negotiations.

The key is that you want to construct a lease that reduces the possibility of litigation between the parties and allows for both to achieve their aims. Some of the potential pitfalls that you can avoid by carefully negotiating the terms of the lease include:

• Situations in which the landlord does not make the necessary repairs to the property to ensure that it is helpful for the tenant
• The landlord chooses not to renew the tenant’s lease, leaving the tenant in a lurch (the agreement should often give the tenant options to renew the lease of their own accord for several successive terms)
• The landlord is attempting to terminate the lease because they believe that the tenant is failing to comply with the terms
• There are disputes over which party must pay what parts of the costs of operating the property

Get Help from a Commercial Real Estate Attorney Today

Since there is so much at stake when you sign a commercial real estate agreement, you should not try to review the lease solely on your own. You want to understand what you are signing and generally want to review your obligations before agreeing to them. However, you will only want to sign something with the help of a commercial real estate lawyer because taking a DIY approach to your important legal issues can be a recipe for disaster. You can be sure that the other party to the commercial real estate lease is likely being advised by their own real estate lawyer. They may even have an entire legal department that does nothing but focus on leases and issues surrounding them. Therefore, you do not want to be at a disadvantage to the other party in the transaction because they are undoubtedly and rightfully looking out for their own legal and financial interests.

Your commercial real estate lawyer will review the lease before you sign it to see if any changes are necessary. They can negotiate on your behalf or suggest changes that need to be made to the document before you sign it. Otherwise, you can end up locked into a lease agreement that is unfavorable for you. At the very least, a commercial real estate lawyer can explain what you are signing before you enter into a contract.

Not getting legal help is not an excuse that you can use in court if problems arise with your commercial lease agreement. Once you sign the agreement, it is binding, regardless of whether you got legal help. Courts will generally assume that you had an attorney review the document, especially when you have signed something as complex as a commercial real estate lease.

It is always best to have an attorney review any critical document you sign, especially a vital commercial real estate lease. This review protects your legal rights now and in the future.

A commercial lease agreement is a complex legal document you should never take lightly. By having a lawyer review the agreement, you can avoid costly mistakes and ensure the contract protects your rights and interests. So, before you sign any contract, it is in your best interest to consult with a lawyer with experience in commercial real estate law. Their guidance can give you peace of mind and set you up for success in your commercial lease agreement.

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