Common Commercial Lease Clauses

Though your real estate broker will be the expert during your lease negotiations, project managers have often pointed out items that should be included or excluded from a lease. Below are some common commercial lease clauses to understand and watch-out for in a real estate transaction.

 

Option to Renew Clause: This is an important clause to include in a lease. It’s all in the name; it is beneficial to at least have the option to renew your lease in your current space when the termis up. Even if you plan to relocate at the end of your lease, it can be beneficial to have the option for negotiation purposes. However, be prepared for the landlord to raise the rent after the initial lease period ends. This is very common and the issue should be addressed before entering into an initial lease. There may be a chance that you can negotiate a predetermined fix rent, which may save money in the future.

Related- Understanding and Calculating Load Factor

Leasehold Improvement Clause: Also known as tenant improvements. This clause will discuss which improvements to the leased space should be made by the landlord. Changes such as paint, flooring, light fixtures, etc. will either be the landlord’s responsibility or the tenant’s.  Once an agreement is reach, this should be memorialized in the leasehold improvement clause.

 Related- Five Common Real Estate Terms Explained

Character of Use Clause: The character of use clause goes beyond zoning restrictions. This clause will define the “type and character” permitted within the premises. This clause can be useful in a long term lease where one could restrict competitive businesses from the site, per the character of use clause. This clause can also help in establishing “compatible” businesses in a building. For instance, if you are a doctor renting in a multi-tenant building, you would want to protect your professional image by having the landlord rent to compatible tenants such as a pharmacy or dentist rather than a check-cashing office a fitness studio that plays loud music.

Katie Craven
Katie Craven is Marketing, Communication and Brand Manager at Watchdog Real Estate Project Managers, a real-estate consulting firm that provides owner’s representation and project management services. More about Watchdog Real Estate Project Managers as well as additional blog posts can be found here.
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