- Real Estate
- Food & Drink
June 22, 2020
This paid piece is sponsored by Woods, Fuller, Shultz & Smith PC.
By Andrew Nelson, attorney
Leases are familiar legal agreements in the business world. For a variety of reasons, businesses may not believe it is worth consulting an attorney before entering into a lease. But even a sophisticated business owner may miss points to negotiate or risks by not fully understanding the terms, legal obligations and potential liabilities associated with a commercial lease. Below are some of the pertinent issues bearing special consideration in commercial leases.
Force majeure clauses address the parties’ obligations and their right to suspend performance under a lease upon the occurrence of certain events such as wars, terrorist acts, acts of God, natural disasters, pandemics and labor strikes. The COVID-19 pandemic has highlighted how consequential these provisions are when the unthinkable occurs. While these clauses usually apply to performance obligations, such as a requirement for the tenant to continuously keep its business open, they traditionally exclude payment obligations.
Commercial leases typically contain provisions limiting the use of the premises. A landlord wants to control the mix of services and merchandise to maximize the value of the property. From a tenant’s perspective, restrictions on how the premises may be used may seem innocuous, but businesses don’t live in a static environment. The business may grow, add or discontinue divisions, products or services, or shift into new markets. An unwary tenant may be in for an unwelcome surprise upon finding out the new opportunities it wants to pursue are not permitted under its lease.
Each party to a lease should maintain its own insurance covering its own property and liability. While the concept is straightforward, the management of risk and loss through insurance is more complicated than it seems. Frequently, leases reference forms that no longer are used in the insurance industry or language that does not correctly identify the perils insured or excluded under the policies. An attorney, together with your insurance agent, can help you obtain the necessary and intended insurance coverage.
It is very common for disputes to arise between a landlord and tenant over their responsibilities to maintain and repair the leased premises. It is also in both parties’ interest to have clear terms governing these responsibilities. Accordingly, it is important for the lease to clearly identify: (i) the items, structures and areas on the premises subject to maintenance and repair, (ii) which party bears the obligation and expense to repair and maintain particular items and (iii) if any costs are subject to set-off or reimbursement.
Common areas are the parts of a building or the property, such as the parking area, which are utilized on a nonexclusive basis by some or all tenants. Parties often overlook the importance of the common-area provisions in a lease. A landlord wants exclusive control to change the layout, size and scope of the common areas. A tenant on the other hand seeks (i) a continuous right to use and access the common areas, (ii) an ongoing covenant for the landlord to maintain the common areas and (iii) an assurance the common areas won’t be changed without the tenant’s consent.
Whether you are a landlord or a tenant, retaining an experienced attorney to draft or review your commercial lease before signing it can add real value by helping you navigate the various provisions and risks associated with the lease.
Landlord or tenant: These are five solid reasons you should make sure an attorney reviews your commercial lease before you sign.