Many small business owners lease real property for business use. Before entering into any lease, it is advisable that the small business owner have the lease reviewed by counsel. Counsel can identify and address a number of issues that may arise, which can turn a lease from a business asset into a business liability.

Lease Term and Options

The lease term and renewal options enhance the value of a lease. Any option for renewal should be expressly stated in the lease. In addition, the lease should expressly include how the renewal option should be exercised, and to whom and the manner in which notice should be directed.

Right to Sublease

The right to sublease leased real property enhances the value of a lease. Generally, a sublease will not relieve the original party to the lease of his obligations under the lease.  However, it may provide the business owner with an invaluable “out” in the event the business cannot be maintained. 

Restrictive Use Clause

An overly restrictive use clause diminishes the value of a lease. Use clauses can restrict the type of activities permitted on leased real property and how they are conducted.  Restrictive use clause may also interfere with what appears to be an unfettered right to sublease the real property. 

Exclusives

Particularly relevant in commercial real property with multiple units like malls, an exclusive generally gives the business owner the right to be the only business of a particular type operating within the confines of the property. Exclusives should be expressly included in the lease, and must be carefully drafted so as to expressly state what other businesses will be permitted within the confines of the property.  

Risk of Loss

Fire, flood, or other calamities can render leased property unfit for commercial purposes for a time. The lease should address these contingencies, and provide for how any such situation will be addressed by the parties to the lease. The manner in which the contingencies are addressed may affect a business owner’s need for business interruption insurance.

Right of Eminent Domain

Generally, federal, state and local governments and authorities can take real property for public use provided the owner of the property receives just compensation. Any lease for commercial property should address this contingency, and provide that the owner of the leased property give timely and written notice of condemnation to the tenant.

Improvements and Fixtures

The right to physically alter the leased property to conform to particular business needs or to enhance business opportunity enhances the value of a lease. Improvements and fixtures should be expressly addressed in any lease for real property. Knowing the limits of what improvements can be made, and what happens to them at the conclusion of the lease may help to limit misunderstandings and litigation.

Maintenance

The lease should clearly address issues related to building maintenance and repairs and replacement of vital equipment, such as HVAC units, plumbing and electrical systems. The lease should also clearly address issues such as snow and ice removal. Issues of liability for personal injury and property damage that occur as a result of the condition of leased property should also be clearly spelled out in the lease.

Conclusion

Obtaining legal advice prior to entering into a lease for real property can afford a business owner security, and permit him to focus on making his business a success.