COMMERCIAL PROPERTY

Commercial Property

Commercial Property

Owners of commercial property must be careful in preparing and signing leases with tenants. Owners of residential and commercial property must be careful in preparing and signing leases with tenants. Beyond the financial considerations of the agreement and the income or financial statement analyses, an owner must consider how to protect themselves before, during and after the term of the lease. This article highlights several common mistakes made by property owners when leasing to a tenant. This overview addresses these issues directly, but is not an all-inclusive summary with respect to important issues facing a residential or commercial landlord. Leasing and contract preparation requires expertise—from the owner, from outside consultants and preferably from an experienced real estate attorney.

Legal disclaimers aside, an owner who wants to protect themselves from potential liability and attorney's fees (not to mention administrative headaches), should consider the issues detailed below with respect to the following 5 lease provisions, which commonly lead to substantial landlord mistakes:

Property Rental Use Limitations

Overview

While the intended use of the property has undoubtedly been considered well in advance of the signing of the lease agreement, it is essential that an owner include detailed limitations on the tenant's rights to use the premises. Due to assumptions, prior informal conversations and failure to consider potential ramifications, an owner may overlook this important portion.

Commercial Lease

When renting commercial property you should accomplish 4 things with respect to use commercial property:

Spell out the sole permitted use of the property by tenant. The lease should state simply what the property is to be used for (ex: retail clothing and apparel store, fast-food restaurant, general non-retail office space). Regardless of oral understandings, prior use or anticipated current use, the lease should bind the tenant to the designated use.

Detail specific limitations to the use. The lease should spell out specific disallowed uses, which the owner wants to avoid on the property, that may typically arise in connection with the intended use (ex: no retail activity, limitations on signage or window usage, limitation on number of employees in office, prohibition on style of restaurant service, specifications regarding delivery hours, procedure and location, etc.)

List Specific Prohibited Uses. The lease should explicitly prohibit any business or activity that is illegal or not permitted by zoning ordinances, any use of hazardous materials, any use not permitted due to an exclusive use of another tenant and other desired limitations such as prohibiting adult-oriented services and retail.

Require Certain Obligations of Tenant. Tenant should be required to maintain the property in good and clean condition, operate during desired business hours, operate without substantial periods of closure and should be obligated to notify landlord in writing in the event of any changed or additional use of the premises.

Required Insurance Provisions

Overview

A well-drafted real or sample commercial lease should spell out the insurance requirements of both the owner and the tenant. A property owner must be diligent in being sure that its properties (and pocketbook) are protected upon the occurrence of events ranging from a ...