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Buyer Beware - When Leasing Commercial Office Space

Illinois Business Attorney

Commercial office leases are long, somewhat repetitive, and in all fairness, quite dull. As a result, it makes sense that many soon-to-be tenants don’t really see the ‘fine print’. In their minds, a quick conversation with the leasing agent, a short review of the summary pages and a quick skim over the rest of the document to make sure there is nothing too outlandish will give them the basics. After all, why slow down the process and possibly the business?

The Fine Print
It pays to read the entire lease in detail, as the length, repetition, and ‘baked-in’ monotony of the lease can include ‘details’ that can put a tenant at risk. Below are just a few fine print details that every business should check to make sure the lease is what they expect:

  • Always Confirm the Terms of the Lease.
    • After verbally agreeing to the lease, many tenants simply sign the written document and assume that the terms match what was agreed with the landlord. While we would like to think that verbal agreements translate accurately into writing, verbal agreements may not make it to paper. Tenants should always review the lease to ensure that the basic terms – rent, commencement date, termination date, leased premises – are correct.Typically, tenants who check to confirm that the basic provisions are correct never make it past the lease summary provisions on the first two pages. Yet. these terms are just that – a summary of the rest of the lease. There is a chance that the body of the lease contains terms inconsistent with those on the summary page, or in some cases, competing terms. For instance, the effective date of the lease, commencement date of occupancy and the commencement date of the rent may all be different dates, resulting in a situation in which the tenant is paying rent before it is occupying the premises.
  • Review Common Area Maintenance Charges
    • Most commercial office leases obligate the tenant to pay a certain percentage (usually reflecting the amount of the building they are renting) of the common area maintenance charges (CAM charged). Tenants should review these provisions carefully to ensure that their percentage of CAM charges is reflective of the amount of space they are renting.And, CAM charges usually increase based on the actual costs to maintain the common areas. As a result, tenants should seek a cap on the yearly increases to these charges or they can be hit with an unanticipated increase in the cost to maintain the common areas.
  • Understand Cure Periods and Default Provisions
    • The provisions relating to tenant defaults are often overly punitive in favor of the landlord. As a first step, tenants should make sure that the lease contains adequate ‘cure’ (remedy) periods before the landlord can declare a default.For instance, it may be nearly impossible for a tenant to cure a default relating to a surprise construction defect within five days. It’s more reasonable to have a longer cure period to ensure that the tenant actually has the possibility to cure.
    • Commercial office leases often lack consumer protections often included in residential leases. They often seek to more than compensate the landlord in the event of a breach. For instance, commercial leases will often require a defaulting tenant to pay the remaining rent owed under the lease, plus late charges, a default charge, a processing fee, costs to re-let the premises and liquidated damages. This could result in a situation in which the tenant defaulted on a single rent payment and ends up owing tens of thousands of dollars in damages.
  • Reduce Overbroad Indemnification
    • Landlords will often try to insert indemnification provisions which are overbroad. These provisions can make the tenant liable for any bad thing that happens in the entire building.For instance, a lease we recently reviewed attempted to pin liability on the tenant for any environmental hazards introduced onto the entire property (rather than just the leased premises) by any person (rather than just the tenant or its agents and invitees). As a result, the tenant would have been liable for the actions of strangers in an unrelated part of the building.
  • Negotiate for Realistic Inspection Rights
    • Commercial office leases often appear to allow the tenant to inspect the building prior to occupancy. However, a close reading of these clauses can reveal inconsistencies.For instance, it’s common to allow for inspections. Then, somewhere in the lease it states that on any inspection, the tenant must be accompanied by a representative of the landlord and that the representative’s determination as to the condition of the leased premises is final. That means that even if the tenant objects to the conditions of the premises and the representative declares them to be acceptable, the tenant must accept. These clauses are usually compounded with a secondary provision stating that the tenant’s occupancy of the premises is evidence that they were acceptable. After all is said and done, this essentially prevented the tenant from conducting an effective inspection of the premises.

As simple as leases appear to be, they are complicated and legally binding. It is imperative that soon-to-be and renewing tenants review their leases to make sure they state what has been agreed. The failure to do so could result in the tenant taking on risky obligations and liabilities.

An experienced attorney will be able to help you read between the lines and understand all the legalities of your lease. contact an Illinois Business Lawyer at Anthony J. Madonia & Associates, Ltd.

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