Business Owners: Don't Get Stung by Buried Obligations in Lease Agreements: BB&K's Nancy Park Offers Tips About Signing a Lease

by Best Best & Krieger LLP

The Press-Enterprise - December 3, 2013

When business owners sign a lease for a new space, their key concerns are typically the rent amount, location and the disruption to business from moving. However, a lease is one of the most important contracts a business owner will ever sign, because it is often a long-term financial obligation that can either be a boon, benefit or an expensive blunder.

When presented with a lease, business owners should avoid the inclination to just sign on the dotted line without taking the time to read the entire lease to find blunders hidden in the fine print. Otherwise, you may get stung by unintended charges or costly repairs.

A knowledgeable real estate broker can find the best deal for a space that suits your business needs and make sure you don’t sign an overpriced lease that puts you underwater. Your broker will help you enter into a non-binding letter of intent that summarizes key terms such as rent, term, and who pays for expenses and improvements to be made to the new space.

Almost every lease issue boils down to expenses that either the tenant or landlord must pay. Be sure that you only pay the expenses you have bargained for, and no more. If you miss the key issues, you may be faced with a huge expense invoice in the first month, large repair bills because of deferred maintenance, or additional expenses every month for services you thought were included in the rent.

Here are the top five issues to look for when reviewing that mind-numbing lease:

1. Check the facts: Are all the key terms such as rent and lease term from the letter of intent included in the lease and are they correct? Often some terms are left out, misstated or changed. If so, ask why and request a correction.

2. Expenses: The lease should clearly state who is paying for utilities, janitorial, landscaping, taxes, repairs and tenant improvements. Be sure each expense that is included in the rent or paid by the landlord is clearly stated as such. If there are agreed upon limits on certain expenses, be sure these are noted.

3. Compliance with Laws: Often laws relating to safety items like fire sprinklers or handicapped access have changed since the building you are moving into was constructed. If so, who is responsible for bringing the space, the lobby area and/or building into compliance? As a tenant, you should not have to pay for this expense. If you do, any large expenses should be spread out over several years.

4. Building Systems and Premises: All the heating, air conditioning, ventilation and electrical systems of the building and your space should be in good working order and in compliance with all laws when you move in (i.e., lease commencement). If a landlord is not willing to state this in the lease, ask why not and who will pay for bringing it to an acceptable condition because these can be significant costs. If you have negotiated that this is your expense, be sure you (or your friendly HVAC service person) have a chance to inspect and test these systems before you sign the lease so you know what the dollar exposure might be.

5. Repairs and Maintenance: Be sure you know who must actually call the repair company and who pays for repairs. Often the landlord is responsible to call for repairs, but passes the expense through to the tenant to pay. The arrangement here should be very clearly stated, as well as your remedy if a landlord fails to make repairs, such as a right to repair and deduct from rent.

With a careful eye to the issues, you can avoid the painful sting of unexpected expenses. There is, of course, no substitute for a concise legal review by a knowledgeable real estate attorney familiar with the usual and customary terms and compromises.

This article was originally published in The Press-Enterprise on Dec. 1, 2013. Republished with permission.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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