A new commercial lease can be exciting for new entrepreneurs, but even the most seasoned business owners should take note to avoid certain pitfalls. The enthusiasm that comes with a new location can help propel a business to higher returns. However, it can also lead business owners to skip over important provisions in their new commercial lease agreement. Commercial lease pitfalls to avoid for tenants negotiating a new lease are Common Area Maintenance and general Maintenance provisions.
Common Area Maintenance
Common Area Maintenance (CAM) provisions are common in commercial lease agreements. Typically, these provisions create an extra monthly expense for the lessee based on expected expenses for maintaining any common area property. CAM expenses usually cover exterior lighting, parking lot and sidewalks, landscaping and mowing, janitorial services for common areas, and utilities for the common area, as well as other various expenses. Overall these provisions are beneficial to the lessee because they help insure that the common areas will be well maintained.
The trouble for tenants usually comes in the form of CAM rate increases. Though these increases are usually pro-rated based on the square footage of each tenant, they can become cost prohibitive for new lessees who are not expecting such an increase. It is common to see annual increases of ten percent (10%) or more. These expenses can quickly add up, especially for long term leases. For this reason, it is important to identify CAM expenses in the lease and budget for them. The landlord will often negotiate these provisions.
Maintenance provisions come in many different varieties in commercial lease agreements. Most agreements will divide the responsibilities for maintenance between the landlord and the tenant. Usually this means that the tenant will be responsible for keeping the property in the same condition as it was received with the expectation of reasonable use and wear.
However, some commercial lease agreements will also require that the tenant replace fixtures and equipment relating to plumbing, electrical, and HVAC when necessary. The unwary tenant may be in for a shock while reviewing their lease agreement after they discover their broken air conditioning unit is not repairable. Often it is unreasonable to expect the tenant to replace such equipment, especially in short term leases. But without an appropriate review of the lease agreement, the tenant will not know to negotiate out of such provisions.
The business law attorneys at Smith Simmons love the excitement that comes when a client relocates. We are ready to review your commercial lease agreement today to help you avoid these common pitfalls.