Practical advice. Flat rates. Plain language.


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We continue the Understanding Your Commercial Lease series by discussing how commercial leases treat taxes and what tenants can do to improve tax treatment.

Taxes are another important consideration when working towards understanding your commercial lease. The tax provisions of your lease will detail what taxes are required to be paid by the tenant and what taxes are required to be paid by the landlord. The tax provisions will also detail how and when all taxes must be paid. To understand the true costs of your lease, you must understand what taxes you are required to pay and who takes on the risk that tax rates rise or additional taxes are levied.

What taxes will you be required to pay under your commercial lease?

The taxes you are required to pay are generally described in the definition of “Taxes” in the lease. How the definition will be written…

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commercial-lease-taxes-2

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In this post we discuss the commercial lease letter of intent and why it is important to fully consider even if it is non-binding.

In an earlier post in our understanding your commercial lease series, we discussed the value of hiring a broker and briefly discussed letters of intent. We’ve have had many questions about letters of intent recently, so I am taking a quick detour to address this topic in more detail. I hope this post helps to shed light on what a letter of intent is and why it is an important part of understanding your commercial lease.

What is a commercial lease letter of intent?

A letter of intent (LOI) is a document that includes the important terms of the commercial real estate leasing deal and consolidates those terms in writing prior to the commercial lease being prepared. The letter of intent is designed to…

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Commercial lease letter of intent

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This post in the Understanding Your Commercial Lease series discusses insurance, subrogation, and indemnification.

In this latest post in the Understanding Your Commercial Lease series we’re going to discuss insurance, subrogation, and indemnification. (Subrogation will often be grouped under the insurance provision in your lease.) The insurance, subrogation, and indemnification provisions of your commercial lease allocate risk between the landlord and the tenant (and each of their insurers).

Insurance

In nearly every commercial lease you will find robust insurance requirements for the tenant that are mandated by the landlord. The tenant is going to be required to pay for insurance that will include general liability insurance, property damage insurance for the tenant’s property, business interruption insurance, automobile liability insurance, worker’s compensation insurance, and then often an umbrella policy. The landlord will often ask the tenant for insurance the…

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Insurance, Subrogation, Indemnification

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The latest post in the Understanding Your Commercial Lease series discusses Damages, Destruction, and Business Interruption.

This latest post in the Understanding Your Commercial Lease series discusses damages, destruction, and business interruption. The damages and destruction provisions of your commercial lease will detail who (between the tenant and landlord) will be responsible for damages to (or destruction of) the premises, the building, and the entire real estate complex. Business interruption is often closely associated with damages and destruction as those events often interrupt the tenant’s business, but business interruption can also come about in the context of repairs, maintenance, and utility-related issues. The language in your commercial lease that discusses “smaller” damages is often included in the repairs section of the lease, and the destruction clause (sometimes called the “casualty” clause) will generally cover major damages.

Damage

Damages…

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Damages

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The latest post in the Understanding Your Commercial Lease series discusses utilities, maintenance, and repairs.

To understand the true cost of your commercial lease, you have to understand what utility services you’re responsible to provide and what parts of the premises you are required to maintain and repair. The discussion of utilities, maintenance, and repairs overlaps to some extent with what we discussed in our earlier common area maintenance and other pass through provisions post in the Understanding Your Commercial Lease Series. Common area maintenance provisions deal with some similar utilities, maintenance, and repair related issues. But the utilities-specific section and the maintenance and repairs-specific sections in your commercial lease will detail exactly what the tenant is required to do to maintain its utilities and the leased premises, including the extent to which the tenant is responsible…

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Utilities, Maintenance, and Repairs

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This post in our Understanding Your Commercial Lease Series discusses operating expenses, including CAM and other "pass through" expenses.

To understand the true cost of your commercial lease, you will need to understand operating expense pass through provisions. Expense pass through provisions detail common area maintenance (CAM) expenses, taxes, insurance expenses, and other “pass through” expenses. These provisions are called “pass through provisions,” because the amount the landlord has to pay for these expenses is “passed through” directly to the tenant. The details of operating expense pass through provisions are important to determine the overall value of the deal for both the tenant and landlord. 

While these expenses are always important for a commercial tenant to understand, they are particularly important in lease structures where the tenant takes on the risk of expense inflation, such as NNN and Base Year…

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Pass Through

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This post in the Commercial Lease Series explains different credit enhancement, including security deposits, letters of credit, and personal guarantees.

When negotiating a commercial lease, you will almost always encounter one or more lease clauses (and many times entire lease exhibits) that deal with what landlords often call “credit enhancement.” The major types of credit enhancement found in a commercial lease are security deposits, letters of credit, and personal guarantees. Often you may deal with more than one type in a single commercial lease. These provisions are designed to give the landlord more certainty that the tenant will be able to meet its obligations under the lease. And security deposits, letters of credit, and personal guarantees are particularly important to the landlord when the landlord is extending some type of credit, such as a tenant improvement allowance. They are also…

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Security Deposit LOC Guaranty

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In this news roundup we look at startups' fundraising, mergers and acquisitions, a commercial lease horror story, ride sharing regulations, and more

Here’s a collection of the most interesting legal and business news we found this week:

Ride Sharing

One of the big issues facing Uber has to do with the fact that auto insurance policies for individual drivers generally don’t cover damages from commercial activity, including ride-sharing through applications like Uber and Lyft. In Colorado, USAA and Farmers are now offering ridesharing insurance. Colorado is a natural testing ground for these new types of policies, as Colorado became one of the first states to explicitly authorize ridesharing services in 2014.

Startups & Funding

The big news of the day is Box’s IPO. After a shaky ride through the IPO process, Box’s IPO appears to be an initial success. It is a home run for its…

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We continue our series on understanding your commercial lease by discussing the tenant improvement allowance and how it benefits tenants and landlords.

Tenant improvement allowances are often one of the most important issues for a new tenant when finding and negotiating a commercial lease, especially when the tenant is a start-up. In basic terms, the tenant improvement allowance is the amount of capital the landlord is willing to put into the space for the specific requirements of the tenant’s particular use of the space. Another way of saying it is that tenant improvement allowances are the amount of money the landlord will spend to alter the structure, including on building walls and other partitions, modifying building systems, like plumbing, electrical, and HVAC, and making common space adjustments to facilitate your intended use. “Tenant improvement allowance” can mean many different things, but they…

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Tenant Improvement Allowance- Yellow Poles

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This post in the understanding your commercial lease series discusses the definition of rent, free rent, additional rent and why your business should care.

Rent is so commonly understood that discussing the definition might seem like a waste of time. Rent, free rent, and additional rent are seemingly synonyms. The use of all three terms doesn’t appear at first glance to be particularly sensible: Why not just call “additional rent” “rent” and save the ink? And “free rent” seems like any oxymoron. But understanding the definition of rent, the differences between these terms, and why they are used is important to understanding your commercial lease. Ultimately, knowing the meaning of these terms and leveraging that understanding effectively can help you get a better deal. 

Rent

“Rent” is what you pay the landlord for the right to use the leased premises for a certain period of time. This…

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Rent