The commercial leasing market in Florida is valued at about $8.8 billion. Small and large businesses across the state sign a leases for office, warehousing, and retail space. For businesses, leasing gives more financial flexibility. For property owners, it is an opportunity for additional income. However, you must review each commercial lease clause before signing any lease.
1. Sublease Clause
A commercial lease will typically include a sublease clause. A sublease is when the tenase takes the unused space and leases it to another tenant. This secondary lease agreement is separate from the first one. The landlord of a commercial property may not want a tenant to sublease the property. It creates additional complications. Tenants will want to include a sublease ability. It creates more flexibility to generate monthly income for unused space. Some commercial landlords will include a sublease fee as a compromise.
2. Exclusive Right
Commercial tenants will want an exclusive right clause in the lease. This clause will state that the landlord won’t lease the additional commercial space to a similar company. That way, a tenant doesn’t have to worry about a direct competitor moving in next door. Commercial tenants who lease a large amount of space typically negotiate this type of clause.
In addition, more terms could be included in the exclusive rights clause. These focus on the tenant’s use of the commercial space. There could be limits on operational hours or advertising signage.
3. Rent Escalation
Unlike a residential lease that is a few months or a year, a commercial lease could last several years. Because of this, rent escalation is built into the lease. This commercial lease clause will outline how and when the rent will increase. Different methods can be used to plan for rent escalation. One method is a specified amount at specific intervals. Another option is to have the rent increase tied to the landlord’s cost increases. A third method connects the rental rate increases to the consumer price index or another inflation index.
4. Repairs and Maintenance
A commercial lease should outline who is responsible for maintenance, repairs, and improvements. Typically, a commercial landlord will expect the tenant to repair and maintain the rented space. While the landlord will repair and maintain the overall structure, building systems, and premises. However, these are general guidelines. Carefully read this section, as this is a commercial lease clause that can get intricate.
5. Early Termination
Not on businesses are successful. If a company fails, then it will terminate the lease early. Early termination is the commercial lease clause that will address this. Typically, the clause will include a notice period. The tenant will need to tell the landlord in advance of its intentions to terminate early. There could be additional terms, such as a buyout. The tenant will need to pay an agreed amount of money to “buy out” the remainder of the commercial lease.
6. Improvements
Many business tenants want to make improvements to customize the commercial space. However, this can result in permanent changes to the commercial space. A landlord may or may not agree with the tenant’s changes. To address this, an improvements commercial lease clause is necessary. In one part, the clause will outline what improvements will be made to the commercial space before the start of the lease. It will also outline who is financially responsible for these changes.
In another part, the clause will outline the tenant’s rights to make future changes and improvements. It could give open freedom to make certain changes. However, it could also require written approval from the landlord.
Carefully Read Commercial Lease Clauses
Before signing any lease, read thoroughly. Check for these six common clauses in addition to the specific lease agreement terms. That way, you know what your rights are within the lease terms. You also know what you are responsible for. By fully understanding your lease, you can make more accurate business plans.
Schedule a consultation to discuss your commercial lease plans with our knowledgeable real estate attorneys.
