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Read Carefully Before You
Execute That Commercial Lease
By: Douglas M. Leavitt, Esquire
Commercial real estate leases are unique animals
and without proper planning, can devastate a successful
business and their owners individually if they are
not dealt with prior to execution. When executing
a lease, it is important to understand not only
what is expressly stated in the lease, but also
those terms that are implied by law. Although rent,
term, purchase options and security deposits are
always important issues to any lessee, there are
other issues that must be considered. While
not an exhaustive list, major issues that a lessee
should consider prior to execution include:
Never enter into a commercial real estate lease
in your individual capacity. If necessary, offer
to personally guaranty all corporate obligations.
Be wary of the lessor who states, “Don’t
worry. That is why you have insurance.”
Pennsylvania law does not require a commercial landlord
to mitigate his/her damages. Therefore, be sure
the lease requires your landlord to mitigate damages.
If a zoning change is required for you to operate
your business, negotiate in advance under what circumstances
the lease can be terminated early if you are unable
to obtain either a zoning change or variance. Also,
be sure to include in your lease that your landlord
has an obligation to support you before the zoning
board.
You may be responsible under applicable law for
environmental problems that occurred on the leased
property prior to your lease term that you obviously
did not create. Please review the environmental
and indemnification sections of your lease carefully
and ask questions concerning prior “uses”
of the property.
Be sure that you have meaningful rights against
your landlord if it sells the property to a third
party. It is not uncommon for a landlord to have
provisions in their leases that limit a tenant’s
right to the landlord’s equity in the property.
However, if the tenant is not careful, the tenant
will lose any rights it may have upon the landlord’s
sale of the property to a third party.
Mr. Leavitt works in the Philadelphia office
of Danziger Shapiro & Leavitt, P.C. where
he focuses his efforts on assisting small to midsize
companies with all aspects of their operations.
Mr. Leavitt can be reached at (215) 545-4830 or
at Leavitt@DS-L.com.
The information contained herein is provided only
for informational purposes and is not intended
as legal advice.
- Published in "The Alliance Report"
May 2005 |
