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Understanding the Key Terms in a Commercial Lease – Part 2

This article is the second in our series covering the key terms of commercial leases. In Part 1, we covered use of the premises, exclusivity, initial term and renewal, and assignment and subleasing. Here, we will focus on four important clauses relating to the initial build-out and liability arising out of the tenant’s use of the premises.

5. Build-Out of the Premises

As a commercial tenant, it is important to negotiate for adequate protections to ensure that the build-out of the premises is completed both (i) on time, and (ii) to your satisfaction. If the lessor will be providing a turn-key space, this will commonly include:

  • Obtaining some level of warranty for the build-out work performed;
  • Restricting the landlord’s ability to extend the lease commencement date; and,
  • Limiting any “deemed accepted” provisions and avoiding waivers and releases with respect to completion of the build-out.

If you will be hiring your own contractors to perform the build-out, you will likely want to negotiate for some protections here as well. These could include things like ensuring that the lessor will still contribute to the build-out costs and limiting the lessor’s approval rights during the build-out process.

6. Pass-Through Expenses

Pass-through expenses can represent a significant portion of a tenant’s financial liability under a commercial lease, and ensuring that your lease agreement contains sufficient controls on expense liability will be a key component of your lease review and negotiations. Commercial lessors use a number of different methods for calculating tenants’ shares of common area maintenance (CAM) charges, taxes, insurance and utilities, and you want to make sure that you are clear on how and when each of these expenses will be charged.

7. Indemnification

In terms of liability exposure, the indemnification clause is perhaps the most important provision in the entirety of the commercial lease. In form lease agreements, it is not uncommon for landlords to attempt to pass on all potential liability arising out the use of the premises to the tenant.

However, in most cases, a certain amount of the risk appropriately rests with the lessor (for example, for claims arising out of issues with plumbing, electrical and HVAC systems), and there will always be certain issues that should be carved out from the tenant’s liability (for example, claims arising out of the acts or omissions of other tenants).

8. Compliance with Laws

Similarly, when it comes to compliance with laws – a common “boilerplate” provision – commercial tenants need to be careful to apportion responsibility appropriately here as well. Commercial leases will commonly state that the tenant is responsible for compliance with “all applicable laws” with regard to the premises. However, from Americans with Disabilities Act (ADA) compliance to environmental contamination, there are a number of compliance issues that ought to be the lessor’s responsibility.

Speak with a Real Estate Lawyer About Your Commercial Lease

The Fort Lauderdale real estate attorneys at Michael L. Feinstein, P.A. provide experienced representation for tenants in commercial lease negotiations in the Fort Lauderdale area. If you have questions about your lessor’s build-out obligations, your obligations for CAM charges or other expenses, or any other provision of your commercial lease, we encourage you to schedule an initial consultation. To speak with an attorney about your lease, call (954) 767-9662 or request an appointment online today.