4 Things for Landlords to Include (Among Others) in Every Commercial Lease
As if negotiating and drafting a commercial lease weren’t hard enough, landlords sometimes have to face situations in which a tenant defaults on the lease agreement. Loss of rent is just one area in which you can lose money; the cost of recovering that income and evicting a tenant can amount to much more.
Because so many legal complications can arise from commercial leasing disputes, you should always consult our real estate attorneys before drafting or executing a lease agreement. The following four issues should be carefully considered and included in your lease, in order to protect your interests.
Acceleration Clause. If a tenant does default on the lease, recovering rent payments can be an arduous and time-consuming process. In the event of such a default, an acceleration clause will allow you to immediately demand payment in full for the remaining term of the lease.
Personal Guarantees. If a corporation, partnership, or limited liability company defaults on its lease obligations, a judgment obtained can be difficult to recover because a business entity might not have assets. A personal guarantee signed by the owner of the company allows you to proceed with your claim against him or her personally in addition to the actual tenant.
Attorney fees. Unfortunately, in the event of a default you are at risk of losing not only rent money, but also the attorney’s fees and costs of taking the matter to court. Your lease should include a provision addressing attorney’s fees in the event of a dispute. If your lease does not specifically provide the right for the prevailing party to recover attorney’s fees, it is unlikely that you will be able to recoup the fees in court.
Assignment/Sublease. Sometimes a tenant will decide that the business is no longer viable and will try to assign or sublease the property to another tenant. As the landlord you want to be able to control what the tenant does with the lease by adding a clause providing for landlord’s approval and control of any potential tenant changes, including potentially the landlord’s ability to share in any rent premium, should there be one.
The above are just four items (again, among many others!) that should be included, or at least carefully considered, for every commercial lease. But because real estate law is so complicated, you should always consult with our real estate attorneys before drafting or signing any agreements with commercial tenants. We would be happy to review your current lease form and make suggestions for changes that will better protect your interests.