What terms should I avoid agreeing to in my commercial lease?
The New York City commercial real estate market is hot and shows few signs of slowing. As a potential new tenant, you will want to diligently negotiate the terms of your commercial lease to provide your new business with the best chance of success. By signing a commercial lease, you will typically be obligating yourself to pay often large sums of money for a term of five or more years. As such, it is critical that you employ the assistance of a New York City commercial real estate attorney who will assist you in negotiating a strong commercial lease.
Negotiating Your Ideal Lease
There are numerous factors that you should consider as a potential tenant in a commercial building. You will want to closely review the lease presented to you with your attorney so that you do not unwittingly agree to a clause that could harm you in the long run. There are certain conditions that you will want to avoid whenever possible. Chief among them is the personal guarantee.
The Personal Guarantee
A personal guarantee obligates you personally to pay the balance of the lease should your business default for any reason. By signing a personal guarantee, you will essentially be eliminating the protections afforded to you by your corporate entity. Check your potential lease for the personal guarantee as it may be hidden within it. At times, you will not be able to get around the guarantee. Other times, you may be able to negotiate for elimination of the guarantee after a certain number of years or even entirely.
In the alternative, it may be possible to incorporate what is known as a “good guy” guarantee into the lease. If your business fails and you need to vacate your space, but pay rent through the date you leave, you’re considered a “good guy.” A good guy clause essentially limits your liability as a tenant for terminating the lease early. If you default on the lease, but are current on the rental payments, and provided that the property is surrendered in good condition, the guarantee provides that landlord will not seek payment or enforce rental agreement penalties.
Tenant Improvement Dollars
Along with negotiating the monthly price of the lease, you may wish to fight for tenant improvement dollars. If you will need to invest considerable sums of money into the building for your business to operate, you may be able to request a certain amount of money be deducted from what you owe as tenant improvement dollars. This will give you a head start in the construction of your new business.
Repair Obligations
Another important factor to consider is repair and renovation obligations. Most leases will require that the tenant make certain repairs to the building. Your attorney will negotiate to ensure your repair obligations are in line with what is expected given your type of use and length of tenancy. By sitting down with an experienced commercial real estate attorney, you can closely review the presented lease and negotiate towards a lease that will protect both you and the landlord for years to come.
Posted in: Real Estate Litigation