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When a commercial space is rented, it is subject to a lease. The lease is usually provided by the landlord or building owner, and its duration can often range between 5 to 20 years. There are perennial issues I encounter in reviewing commercial leases:
- The Standard Form of Store Lease is 6 pages long and contains a lot of small print. Nonetheless, the terms in that print are binding and should be taken seriously.
- Even more important, attached to the end of every commercial lease is a “Rider.” The first clause often states that the Rider wins any disagreements between the Standard Form of Store Lease and the Rider. In effect, the Rider governs.
A commercial tenant should never enter into a commercial tenancy without having an attorney review the proposed commercial lease. Many clients have come to see me after being disappointed in relationships with their landlord, and it is often because they neglected to have someone thoroughly review the lease before they signed. As a result, the tenant ended up signing something that they not only didn’t fully understand, but was not industry standard and weighed too heavily in the landlord’s favor, exposing the tenant to inordinate financial vulnerability.
Anyone with a basic legal knowledge can read what is already included in a lease, but to find what’s missing takes the eye of a professional.
Once a tenant decides on a space, their leverage in negotiating a lease is based on several things, including but not limited to:
- Their financial records and credit-worthiness;
- The number of years, if any, the business has operated; and
- The size of the tenant’s stake and length of the tenant’s term.
Regardless of the power and relative leverage of each party, below are some of the basic issues that must always be addressed:
Build-Out Provisions
In a standard form lease, any build-out requires the tenant to seek written approval from the landlord. This can often include a work order and an estimate of the work to be done. It is vital that the approval be done in writing. Our firm has been, all too often, witness to calamitous stories of tenants sinking tens of thousands of dollars into a leased space based on verbal approval, only to be suddenly sued for eviction due to a material breach of their lease. This suit can materialize even if the work significantly improved the value of the property. What’s worse, if the tenant decides to extract the improvements it has made, they risk breaking the law. Premises improvements may legally be deemed “fixtures,” and, according to New York State law, possession may have transferred to the landlord when they were fastened to the building.
Rent Abatement
A rent abatement can involve both reducing or eliminating a portion of the rent for an initial build-out, or when part or all of a premises becomes unusable during the tenancy due to no fault of the tenant. Obtaining a rent abatement requires a strong understanding of the power dynamic between landlord and tenant, so if you believe you might be entitled to one, you should discuss it with an attorney.
Notice of Default
Often, when a landlord believes the tenant is in default, the landlord must provide a notice to the tenant describing the default and giving the tenant an opportunity to cure it. Because a commercial lease is often extensive and the terms highly specific, material breaches can occur with even the most well-meaning tenant. For example, if a lease says rent is due on the first of every month, and the tenant hasn’t paid by the 7th, the tenant could face charges up to 10% of the rent just as a late fee. If the tenant hasn’t paid by the 15th of the month, the tenant might even find themselves in material breach of the lease. Without a notice of default and the chance to cure the breach, the tenant could then face eviction. Consequently, requiring a notice of default and a reasonable amount of time to cure is essential.
Subletting
City tenants often rent sizeable spaces with the intention of subletting portions in order to subsidize their monthly overhead. Subletting can get complicated, especially, for instance, with businesses such as hair salons or tattoo parlors, which often sublet to multiple contractors. A tenant may in fact be in breach of their lease simply because independent contractors are paying for time in their chairs.
Signing a commercial lease without a thorough review from an experienced attorney will almost certainly result in a very negative outcome for any tenant. Contact our office today to discuss your business plans and any leasing issues you may encounter.
Do you have any questions or need assistance? Contact us today.
Aaron Pierce
(212) 882-1752
299 Broadway, Suite 1405
New York, NY 10007
aaron.pierce@piercekwok.com
piercekwok.com
