TENANT TIPS

The lease term, sometimes called the primary term, is the length of time the tenant agrees to occupy and pay rent for the space.

A longer lease term may give the landlord more security, which can sometimes help the tenant negotiate better economics, such as a lower rental rate, more tenant improvement dollars, or additional abated rent. A shorter lease term may give the tenant more flexibility, but landlords may be less willing to fund improvements or offer aggressive concessions.

Base rent is the amount a tenant pays for the premises before adding other costs such as operating expenses, taxes, insurance, utilities, or common area maintenance.

Commercial rent is often quoted annually on a per-square-foot basis. For example, a quoted rate of $24 per square foot usually means $24 per square foot per year, not per month.

Rent escalations are the scheduled increases in base rent during the lease term. These increases are commonly structured as a fixed annual percentage, a fixed dollar amount, or an increase tied to an index.

Escalations matter because a lease that looks affordable in year one may become much more expensive by year five or year seven. Tenants should review the full rent schedule, not just the starting rent.

Abated rent is a period of reduced or free rent, usually at the beginning of the lease term. Landlords may offer abated rent to help offset the time and cost required for permitting, construction, hiring, moving, fixturing, or opening the business.

Abated rent can be especially useful for tenants who need time to build out the space before they are fully operational.

A tenant improvement allowance, often called TI, is money the landlord agrees to contribute toward the cost of improving the space for the tenant’s use.

TI is usually quoted as a dollar amount per square foot and is commonly used for hard construction costs such as walls, flooring, HVAC modifications, lighting, restrooms, and other physical improvements. Tenants should clarify what costs are eligible, when reimbursement will occur, whether lien waivers are required, and what happens if the project goes over budget.

Many landlords ask for a personal or corporate guarantee, especially when the tenant is a newer business, a single-purpose entity, or a company without a long operating history. A guarantee can make the guarantor responsible for some or all lease obligations if the tenant defaults.

Tenants may be able to negotiate limits, such as a capped guarantee, a burn-off after a certain period, or a guarantee that decreases over time if the tenant stays current.

A renewal option gives the tenant the ability to extend the lease beyond the initial term. This can be valuable if the location becomes important to the business or if relocating would be disruptive.

Tenants should review the timing requirements carefully. Many leases require written notice several months before the lease expires. Missing that deadline could eliminate the renewal right.

In many commercial leases, tenants pay some share of operating expenses, taxes, insurance, and common area maintenance charges. These costs can have a major impact on total occupancy cost.

Tenants should ask what expenses are included, what expenses are excluded, whether there are caps on controllable operating expenses, how expenses are reconciled, and whether the tenant has audit rights.

Signage can be critical for retail, medical, service, and showroom users. Tenants should confirm what signage is allowed, where it can be placed, who pays for it, whether permits are required, and whether monument, building, window, or directional signage is available.

Parking should be reviewed before signing the lease, not after opening. Tenants should confirm the number of spaces available, whether parking is reserved or shared, whether there are restrictions during peak hours, and whether employees and customers will have practical access to the premises.

Retail and service tenants may want exclusive use language that prevents the landlord from leasing nearby space in the same property to a direct competitor. Exclusivity clauses need to be clearly written so both parties understand what uses are restricted and what remedies apply if the clause is violated.

A business can change over the course of a lease. Assignment and subleasing rights help determine whether the tenant can transfer the lease, bring in another operator, sell the business, or sublease unused space.

Tenants should understand when landlord consent is required and whether that consent can be unreasonably withheld.

Commercial leases can place significant repair obligations on the tenant. Depending on the lease structure, tenants may be responsible for HVAC, plumbing, electrical, glass, doors, roof penetrations, interior systems, or other parts of the premises.

Before signing, tenants should clarify what condition the space will be delivered in and who is responsible for repairs after occupancy.