Business-Owner Beware: Adverse Provisions in Commercial Leases

Author: McMillan Metro Editor Date: 09/05/2012

Categories: Commercial Leasing, Corporate and Business Law

A lease for the office building in which your business operates is essential. Unfortunately, these documents also tend to be very long and complex. The average commercial lease is 30 pages long, and filled with fine print which the typical business owner is not equipped to understand, much less negotiate. Unlike a landlord who drafts lease agreements on a regular basis, a business owner is at a huge disadvantage to assess the risks and liabilities of seemingly-harmless provisions in a standard commercial lease. Knowing what provisions and language to look for is key. This article addresses only a few of the many specific provisions in lease agreements that should be modified to protect your business. This list is not exhaustive; we encourage you to consult an attorney prior to entering into any lease.

Landlord’s Right of Access

A landlord may seek to obtain the right to enter your business through a provision that grants them the right enter “at any time for any purpose” or, sometimes, at “any reasonable time.” While this may be helpful when you request an essential repair, it can be detrimental when the landlord disrupts a normal business day or even prevents customers from entering your premises.We suggest that a tenant seek to narrow this type of provision by specifying that a landlord’s right to enter applies only in case of emergency, when the landlord must enter for repairs or improvements, or by appointment. Alternatively, a tenant may limit such a provision to apply only when such access does not materially or adversely affect the tenant’s use of or access to the premises.

Arbitrary Relocation Clauses

In some leases, often in office buildings and shopping centers, a landlord may reserve the right to relocate a tenant to a different location than was originally specified. This type of provision may sometimes include some accommodations for the tenant’s benefit by allowing a reduction in rent, requiring the landlord to pay costs associated with the move, or limiting the relocation to new premises that are similar or comparable in size. Regardless of any accommodations, relocation can be a significant interruption to your business. Depending on your type of business, the location may be so essential that relocation is fatal to your operation. This provision needs to be stricken or drafted carefully to restrict its use. If it cannot be eliminated completely, consider limiting the time period during which you can be forced to move. You should also include a provision requiring that the relocated space have as much “visibility” and customer appeal as the former space. Finally, you should insist that the landlord pay for all moving costs, including printing new marketing materials and moving all data lines.

Tenant’s Sale of Business

Lastly, we address one of the most detrimental provisions that may be included in your commercial lease: the obligation to pay the landlord any compensation that you receive due to your assignment of the lease. Often the lease includes in the definition of assignment the sale of your business. Thus, this provision may grant a landlord the right to receive some of the proceeds from the sale of your business. We suggest that this type of provision be negotiated to be very limited in its scope.

For more information about protecting your business when entering into a lease, please contact the attorneys at McMillan Metro at (301) 251-1180 for more information.