The current economic climate and, more specifically, real estate market are such that commercial landlords should take extra precautions in entering into leases.  This is a list of the top 10 lease negotiation tips for commercial landlords:

  1. Determine the financial capacity of the proposed tenant.  Due diligence at the front end can save heartache – and legal fees – later.
  2. Obtain adequate security for the tenant’s obligations under the lease.  Whether in the form of a lease guaranty, a substantial cash security deposit, or a letter of credit, security is a significant lease issue — especially in the current business environment.
  3. Use your lease form.  Historically, this would have a been a “no brainer”, but that is no longer the case.
  4. Hire an industry-specific attorney.  In other words, don’t just hire any real estate lawyer to prepare and negotiate, for example, a restaurant lease.  Office leases, industrial leases, retail leases, and restaurant leases (to name a few) implicate industry-specific issues and concerns; make sure your attorney has the requisite experience and expertise.
  5. Avoid long-term leases (or leases with long-term options) that do not provide for adjustment of the rent to fair market value.  Historically (especially in California), CPI – or similar types of fixed – increases do not keep up with fair market rental value of commercial property.
  6. Do not permit a tenant to exercise an option to extend the term of its lease if it is, or has been, in default.  The last thing you need as a landlord is a problematic tenant with a right to extend its lease.
  7. Limit your representations and warranties to a minimum.  And, to the extent appropriate, qualify them “to the best of your knowledge without investigation or inquiry.”
  8. Have your insurance broker review the insurance provisions of your lease to ensure that they are up to date and sufficiently comprehensive to protect your interests.
  9. If possible, avoid “caps” on common area maintenance charges, real estate taxes, and insurance expenses.  Put simply, the world is an uncertain place, and you are better off preserving flexibility in the face of uncertainty.
  10. Have your attorney review your lease form periodically to keep it current and protective of your interests.

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