Commercial Real Estate

Understanding Your Commercial Lease: Taxes

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 Real Estate

Understanding Your Commercial Lease: 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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Commercial Real Estate

Understanding Your Commercial Lease: 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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Commercial Real Estate

Understanding Your Commercial Lease: Operating Expenses, including Common Area Maintenance (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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Commercial Real Estate

Understanding Your Commercial Lease: Security Deposit, Letter of Credit, and Personal Guarantee

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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Commercial Real Estate

Understanding Your Commercial Lease: Tenant Improvement Allowances

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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Commercial Real Estate

Understanding Your Commercial Lease: Rent, Additional Rent, Free 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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Commercial Real Estate

Understanding Your Commercial Lease Agreement | Space Planning and the Early Stage Commercial Leasing Process

To get the best deal, have your space meet your needs, and be in the best position to move seamlessly through the commercial leasing process, it is important to plan your commercial space. Today’s post highlights some of those key early stage considerations that will help you optimize the space planning process for your business.

Identify Your Ideal Space

The first step to take once you’ve decided that you’re ready to lease a commercial space is to identify what you type of space you’re looking to lease. A good place to start is to identify the specific use for the space and what space characteristics are required for your business. Make a list of those characteristics that are critical, a list of...

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Commercial Real Estate

Understanding Your Commercial Lease Agreement | The Value of Hiring a Broker

If your business is seriously thinking about leasing new commercial space, you will need to identify the space, negotiate the terms of a deal, enter into a letter of intent, and then negotiate a commercial lease agreement to define your rights in your new space. This process can be complicated, and it can also be relatively simple. Whether it is complex or simple depends on factors such as your intended use, the term of the lease, the size of the space, the availability of space in the market, and other factors. Usually it is somewhere in between. Regardless of the size of your lease, you can benefit from the services of a licensed commercial real estate leasing broker.

A broker can be...

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