Use

• The majority of commercial tenants will confirm that their landlord permits them to use the leased premises for their desired use.

• Fewer will consider whether the zoning ordinance for the municipality permits their desired use. Often, similar uses in surrounding properties and information provided by the broker gets relied upon.

• Commercial tenants are best advised to call (or have counsel call) the municipality directly to discuss their desired use of the leased premises.  

Recapture Right

• A recapture right is a provision found in certain sections of commercial leases and provides the landlord with the ability to reclaim or recapture the leased premises (or a portion thereof) upon the occurrence of certain events.

• It appears most often in the Assignment/Subletting section of commercial leases and states that the landlord has a right to terminate the tenant’s lease with respect to any portion of the leased premises that the tenant requests permission to assign or sublease. 

• Commercial tenants should be aware of this provision and if it exists, exercise caution when requesting permission to assign and/or sublease space, particularly if their lease has below market rent, or if tenant is aware that that the landlord may be looking to redevelop the property.

Relocation

• A relocation clause is a provision found in commercial leases that grants the landlord the ability to move a tenant from one leased space to another within the same building or property during the term of the lease.

• It is often used to accommodate a new tenant with specific square footage requirements or to facilitate renovations or remodeling of the property.

• Although landlords typically offer to cover the cost of relocations, most businesses will suffer a  loss of revenue and customer base that is rarely addressed.

• Commercial tenants with complex infrastructures or specific licensing requirements should be very sensitive to a relocation clause in their lease.

CPI Rent Escalations

• Commercial leases often include language that rent shall increase on an annual basis.

• Increases are typically structured either on a flat percentage basis (i.e. 3%) or by tracking  the increase over the Consumer Price Index (CPI).

• CPI is a measure that examines the average change in the costs of goods and services over time and is typically used as an indicator of inflation.

• If CPI is used as the basis for annual rent increases, tenants are strongly advised to negotiate a cap for annual increases. A failure to do so could result in rapidly increasing rent in times of high inflation (i.e. over 8% in 2022).

Time of the Essence Language

• Time of the Essence is a legal phrase used in contracts such as commercial leases to emphasize the importance of strict adherence to specified timeframes and deadlines.

• In commercial leases, it often used in the following contexts
  • Payment of rent on a specific date;
  • Exercising an option to renew or extend the lease
  • Performance of repairs and/or maintenance obligations

• Commercial tenants should be aware that delays or failures to meet Time of the Essence deadlines (wherever they may appear in the lease) may result in legal consequences.