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Red Flags to Avoid in A Commercial Lease

A commercial lease typically contains professional language and legal terms that require review by a real estate attorney before it is signed. A long-term lease with unfavorable terms can create financial and operational burdens for a tenant or business owner.

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Red flags

Red Flags in Commercial Leases

A Short Lease Term

Unlike residential leases, commercial leases typically offer longer lease terms, negotiated on a yearly basis. Rather than a one-year lease, commercial leases usually offer terms from 5 to 15 years, which provide stability for a business tenant and allow long-term plans for company growth. A long-term lease offers a better real estate deal for many businesses.

Automatic Rent Increases

Commercial leases that allow automatic rent increases with renewal terms can create a financial hardship for a business tenant. Since most businesses become associated with a location, a move can cost business losses. Favorable rent and renewal terms for when the lease expires should be clearly stated in the original lease.

Vague Tenant/Landlord Responsibilities

When signing a commercial lease, it’s important to fully understand tenant/landlord responsibilities. Responsibility for building repairs such as roofing, heating and air conditioning, electrical, gas, and plumbing must be clearly defined in the lease. Vague explanations of tenant/landlord responsibilities can create significant costs for a business operation.

Limits on Property Improvements

Many commercial tenants on a long-term lease want to make physical and/or cosmetic alterations to the premises for expansion of business operations or appearance upgrades. When a landlord holds complete control over building improvements, a real estate attorney is often necessary to negotiate a tenant improvement allowance.

A Relocation Clause

A relocation clause in a commercial lease can have both favorable and unfavorable terms. If a building has multiple retail storefronts or office floors, a relocation clause may allow the property owner to move the tenant to a different space on the property. This may create additional expenses and operational costs for the tenant. Before signing a commercial lease, a real estate attorney can put stipulations in the contract that make the property owner responsible for any tenant relocation expenses, proper notice for relocation, and protection against rent hikes due to relocation.

Before signing a commercial lease in Illinois, tenants must read the terms of the lease carefully to avoid red flags that can impact business operations and finances. An Illinois real estate attorney can explain lease terms and negotiate a favorable lease for the tenant.

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