Business owners may not realize that commercial leases are much more complex than residential leases. They can be quite lengthy and contain a lot of legal language about which responsibilities are the tenant’s, and which are the landlord’s. That’s why it’s important for business owners to consult with commercial lease attorneys before signing a lease.
What Do Commercial Lease Attorneys Look at When Reviewing a Lease?
Commercial lease attorneys carefully review leases for their clients, looking for any unclear language, or any clauses that could create problems for their clients. They also evaluate what’s not in the lease, because landlords may use lease templates that aren’t specific to their property.
Here are some of the specific elements of a lease that businesses may want a Houston commercial lease lawyer to review:
Rent and lease terms
Unlike residential leases, rent and lease terms may be negotiable. For example, if you agree to a longer lease, you may be able to pay lower monthly rent. However, this type of agreement must be clearly spelled out in the lease.
Texas law requires landlords to refund security deposits within 60 days of the end of a lease. Landlords may withhold a portion of the deposit only for damage to the property, not for normal wear and tear. In the lease-negotiation process, tenants should be sure to document any existing damage to prevent potential disputes about the damage deposit refund.
Commercial leases may be structured in several ways. These are the most common types of commercial leases, although a landlord may create a hybrid lease that specifies other terms:
Gross lease — The tenant pays a “base” lease amount and utilities, and the landlord pays for all other costs, such as building maintenance, property taxes, and insurance.
Net lease — Net leases require tenants to pay building maintenance, property tax, and/or insurance costs. In commercial buildings with multiple tenants, those costs are shared, but a tenant who is the sole occupant of a building may be responsible for all of those added costs.
Note that, depending on the property, parking lot maintenance responsibilities may also need to be included in the lease. In a case that the Texas Court of Appeals reviewed in 2016, a tenant argued that the landlord was responsible for the maintenance and repair of parking lot lighting. The court agreed, finding the lease’s “as-is” language applied to the rented space, and not the parking lot.
Use of premises
Landlords typically include a “permitted use” clause in the lease that defines how tenants can and cannot use the property. Growth-minded business owners should make sure that the permitted use clause does not limit their opportunities. For example, a coffee shop owner may eventually want to add craft cocktails to their menu, but a permitted use clause might forbid the sale of alcohol on the property.
Right of first refusal
A right of first refusal (ROFR) clause compels a landlord to offer their tenant the right to purchase the property, should a third party offer to buy the property. Only if the tenant declines the offer to purchase the property may the landlord sell it to a third party.
If a business owner signs a five-year lease, but their business fails three years into that tenancy, they’d still be obligated to fulfill the terms of their lease, unless an “out clause” specifies otherwise. An out clause — also known as an early termination clause — may permit a tenant to sublet the space, or may define a penalty, such as three month’s rent for early termination.
If a business tenant is operating in a leased building, and an “act of God” destroys the building or renders it uninhabitable, would the tenant still be responsible for paying rent? According to Texas law, yes — unless the lease includes a force majeure clause.
A force majeure clause spells out each party’s obligations in the event of an unforeseeable event that damages or destroys the leased property. This clause can be helpful for landlords and tenants, as neither could sue the other for damages with this clause in effect. However, the word “unforeseeable” is debatable — if a seaside bait shop is destroyed by a storm surge, a court may find that storm surges are foreseeable in coastal areas.
Our Commercial Lease Attorneys Are Ready to Help
Signing a commercial lease is a big step. With the help of a Houston commercial lease attorney, you can make sure your rights are protected before you sign a legally binding document.
The commercial lease attorneys at Padua Law Firm are ready to help you with your commercial lease. Call now for your consultation: (713) 840-1411.