by Michael J. McKitrick
In spite of the uncertainties caused by the pandemic, your lease remains critical to your business. Commercial leases are complex transactions and should be undertaken with great care.
Following these basic points will make the lease renewal or new lease go smoothly.
1. Know your dates. I have seen many cases where tenants allow their lease renewal deadline to pass or, even worse, have their lease automatically renewed by failing to follow these important deadlines. You should check your lease to see exactly what options you have for renewal as well as the deadline specified in the lease to notify the landlord of your intention to renew. These deadlines are usually strictly enforced by the courts. Likewise for new leases, you need to know when you can occupy the premises – i.e., the start and end dates of the lease term.
2. Start early. You should start your decision process well before you need to enter into or renew your lease. The earlier you start, the more time you will have to test the market, review potential alternative sites and make your decision. Many renewal provisions have a market rent adjustment, so you will need to find out what your landlord proposes as “market rent” well in advance of the deadline to give you time to negotiate or consider alternatives.
3. Consult the experts. You should consult a commercial real estate broker familiar with your type of property and location to assist you in determining the options available in the market, including rent and other terms that landlords are providing. These professionals know the market, players and concessions generally available. Brokers generally work on a commission basis (typically the landlord pays the commission), and your landlord will most likely be consulting with his or her broker, so you need to even the playing field. At the same time, you should consult with a real estate attorney so that your attorney will be on board when the lease proposal is made and when you are presented with a lease or renewal document.
4. Carefully review the lease documents. Depending on the type of property, whether construction is contemplated and many other factors, leases are lengthy and complex. Much legalese is involved, and legal terms have meaning and importance that are not apparent to someone who is inexperienced in reviewing and negotiating leases. The lease or renewal document should be carefully reviewed by your attorney and revised to include provisions necessary to protect your interests. For example, a “Force Majeure” provision should be included for relief from government shut-down orders, etc. You should also request a renewal option with a fixed rent so you can extend your term at your option. These are just a few examples of terms that are critical to your protection. Most landlords have lease formats that are unfavorable to tenants, but landlords are willing to negotiate lease terms especially now, when it is a tenant-oriented market for many properties.
If you follow these steps, you should be able to navigate the lease minefield without a blow up!
Michael J. McKitrick, a corporate law attorney with Danna McKitrick, P.C., has over 40 years of commercial litigation and transactional law experience. His practice encompasses business and transactional advice, commercial real estate matters, and regulatory and practice management guidance for health care professionals. Mike can be reached at 314.889.7122 or firstname.lastname@example.org.