Your landlord checklist for commercial lease negotiation.
If you are a Landlord desiring to lease your commercial space to a tenant, you (or your property manager) may well benefit from these tips for landlords. From my years of experience, here are some things I would recommend for you:
- Obtain and review the tenant’s financials.
This helps determine if a tenant will have the financial strength to be a good tenant to you. Sales tax and income tax returns, letters of credit, i.e., third-
party documents not prepared by the tenant or tenant’s financial history, are essential, as well as its operating reports and balance sheets.
- Obtain or prepare a “Letter of Intent” signed by the tenant.
Although letters of intent are generally not binding on a tenant, they do help you to secure a tenant’s intention to enter into the
Lease and flesh out its essential terms beforehand, thereby reducing latter negotiation time.
- Negotiate lease terms.
Each tenant has their own lease terms and desires—some needed, and some not so. An attorney, like myself, can help you determine the deal breakers from the non-essential terms to reduce a tenant’s wish list and your negotiation time.
- Additionally, a landlord’s lease concerns should include:
- Obtaining a sufficient security deposit
- Setting method of receiving rent (Tenant’s auto-pay account is recommended to avoid collection headaches downstream)
- Specifying favorable to you periodic cost-of-living increases in the rental amount
- Setting option-to-renew conditions and terms
- Allowing rental increases based on fair rental value as may be determined by an appraiser or mediation; providing the tenant contribution for common area maintenance costs, the disclosure of last year’s costs
- Obtaining enforceable personal guarantees of Tenant’s owners to lease in Tenant corporation or LLC’s name
- Setting a ceiling on prevailing party’s recovery of attorney’s fees
- Limiting Tenant’s right to recover damages against Landlord, e.g., no loss of prospective of profits, and no personal liability against you or your shareholders if Landlord is a corporation or LLC.
That’s enough “goodies” for now. If you as a landlord need help in commercial lease negotiation, call me to serve you.