FUNDAMENTALS OF CORPORATE LAW: REAL PROPERTY LEASES
July 12, 2011
By James Forrest
Most of my client base touches real property leases in some capacity; either as landlord or as tenant. When working in conjunction with a company’s commercial real estate broker, a business attorney can become an effective advocate to ensure that not only are the pricing terms are amenable to the client company, but that many other aspects to these sometimes complicated arrangements work to the benefit of the business as well from a strategic planning and risk management perspective.
The first and often most important subject to tackle is the pricing in the lease agreement. In these types of commercial arrangements, prices can look more attractive than they actually are, since several parts of the lease are up for negotiation and factor into the overall pricing. In addition to price per square foot, which is typically based on the location and the amount of square footage on offer, utilities for the space, as well as offsetting the building’s owner’s tax, common area maintenance and insurance liability can come into play. Effective counsel can ensure that the pricing package works to the lessee’s advantage as much as possible, while being fair to the lessor.
Another big consideration is the term of the lease and options to re-lease the space at the end of the initial term. On one hand, we help our tenant clients ensure that they have options to renew the space with a certain rental rate locked in. This is a huge value-add if the business does well in the space and the client wants to re-up – particularly, when the rental rate is favorable compared to market rates at the end of the term. On the other hand, however, often time tenant companies without proper counsel find themselves locked into auto-renew clauses that come into force at dates three to five years in the future, when the lease paperwork has accumulated dust in some file cabinet away from diligent eyes. Tenants with proper counsel can build in required renewal notices from the landlord that give them plenty of time to consider their options before any auto-renewals take effect.
Finally, from a risk management standpoint, counsel needs to work with the client to determine the responsibilities of the parties on a variety of sticky topics. Over the course of several years, topics such as compliance with law and building codes, maintenance and repair of the premises, and other general liabilities (such as parties getting injured on the premises, what happens in the event of casualty or eminent domain) can and will become someone’s problem. Our firm endeavors to assist our clients with respect to each issue so that they are not taking on any undue responsibilities.