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Red flags in a commercial real estate lease

On Behalf of | Dec 19, 2022 | Real Estate Law |

A commercial lease is often significantly more complex than a residential lease. Before you sign and commit to the contract, look for these potential red flags.

Vague responsibility explanations

All leases should thoroughly explain which responsibilities belong to the tenant and the landlord. You want to ensure the landlord clearly defines who handles repairs for electrical, heating and cooling units, plumbing and gas. A vague explanation could result in substantial future costs for the tenant.

Relocation clause

If a tenant rents from a property owner with multiple commercial properties, they sometimes include a relocation clause in the lease. This clause would allow the landlord to relocate the tenant to a new storefront, which is inconvenient and could detrimentally affect the business.

Automatic rent increase

Landlords know the value of keeping a business in one location because moving could hurt the bottom line. For that reason, some will include automatic rent increases at renewal.

Demolition clauses

A demolition clause allows the landlord to take advantage of development opportunities in the area. It allows them to terminate a lease early so they can redevelop the property. Typically, tenants only have six months or less to vacate once the landlord notifies them.

Business restrictions

Look for language insinuating that the landlord can control certain elements of your business. For example, they may include restrictions on the focus or concept of your business, and that kind of language can restrict your ability to adapt to a changing marketplace.

This list is not comprehensive. Working with an attorney who can comb through a lease before you sign is a great way to know your rights and protect yourself.