Here are some questions to ask before signing a lease:
- Does the lease specifically state the square footage of the premises? What is the total rentable square footage of the building?
- Is the tenant’s share of expenses based on total square footage of the building or the square footage leased by the landlord? Your share may be lower if it’s based on the total square footage.
- Do the base year expenses reflect full occupancy or are they adjusted to full occupancy (i.e., base year real estate taxes on an unfinished building are lower than in subsequent years)?
- Must the landlord provide a detailed list of expenses, prepared by a CPA, to support increases?
- Does the lease clearly give the tenant the right to audit the landlord’s books or records?
- If use of the building is interrupted, does the lease define the remedies available to the tenant, such as rent abatement or lease cancellation?
- If the landlord does not meet repair responsibilities, can the tenant make the repairs, after notice to the landlord, and deduct the cost from the rent?
- Is the landlord required to obtain non-disturbance agreements from current and future lenders?
- Does the lease clearly define how disputes will be decided?
The Lease terms you should know:
- Right of First Refusal – Before vacant space is rented to someone else, landlord must offer it to the current tenant with the same terms that will be offered to the public.
- Gross Lease – Tenant pays flat monthly amount; landlord pays all operating costs, including property taxes, insurance and utilities.
- Triple Net Lease – Tenant pays base rent, taxes, insurance, repairs and maintenance.
- Percentage Lease – Base rent, operating expenses, common area maintenance, plus percentage of tenant’s gross income (most common for retailers in shopping malls).
- Sublet – rents all or part of space to another business; tenant is still responsible for paying all costs to landlord.
- Assign Lease – Tenant turns lease over to another business, which assumes payments and obligations under the lease.
- Exclusivity Provision – Shopping center can’t lease to another who provides the same product or service that existing tenant does.
- CAM – Common area maintenance charges including property taxes, security, parking lot lighting and maintenance; may not apply to anchor tenants in retail leases.
- Non-Disturbance Clause – Tenant cannot be forced to move or sign a new lease if building or shopping center is sold or undergoes foreclosure.