Know the Law: Key Commercial Lease Terms Tenants Should Consider

Laura Dodge headshot
Laura B. Dodge
Director, Corporate Department and Real Estate Practice Group
Published: Union Leader
January 29, 2018

Q.  I’m expanding my business and looking at leasing a new commercial space.  What are the key lease terms I should be aware of?

A.  A commercial lease is an important legal contract, which should be examined closely and understood completely before signing. Understanding the key terms of a lease, and knowing what landlords want from tenants and what tenants should expect and ask of landlords, will help your business get the most out of your lease. You should be prepared to understand and negotiate the following key terms:

1. Use – The use clause in a lease addresses how the tenant will be allowed to use the leased space. Make sure your proposed use is allowed and the lease doesn’t impose limitations or strict restrictions on your use.  Additionally, it’s important to determine if there are any local or state limitations on your proposed use and whether you’ll need to obtain permits and approvals required for your business.

2. Term – The term clause describes the length of your lease and specifies the commencement date, expiration date and may include possible renewal options. It’s important to consider the lease term carefully to make sure the length of the lease is sufficient to allow your business the opportunity to grow and develop in the new space.  A relatively short term with options to renew will protect you from being unable to relocate when your business thrives.

3. Rent and Other Rental Expenses – Determining the amount of rent and what you may be responsible for paying in addition to rent is critical. It is essential to understand any Common Area Maintenance (“CAM”) charges in the lease that may be passed through to the tenant. Leases often include a CAM provision that requires the tenant to pay a pro rata share of the operating expenses incurred by the landlord in the operation and maintenance of the building.

4. Insurance – Several types of insurance are available to cover the risks of leasing commercial space, including property and liability insurance, business interruption insurance, and leasehold insurance. It’s important to evaluate the lease requirements as well as your own needs with a business insurance agent. Negotiating insurance obligations at the outset will help you minimize your risks and costs associated with your new leased space.

The terms mentioned above are only a few of the key terms to consider when entering into a new lease. Depending on your business, there may be other issues that arise in a commercial lease negotiation, which underscores the need to consult legal professionals who specialize in commercial leasing.