COMMERCIAL REAL ESTATE

Leases

A full understanding of the lease terms and obligations that the lease places on both the tenants and the landlord is needed by all parties. Lease terms should be written in short, plain and understandable sentences to avoid ambiguity.

Net leases are utilized by landlords to obtain contributions to expenses of operation of the commercial property. Rental Payments including costs for real estate taxes, maintenance of common areas, insurance, utilities and other landlord expenses.

Retail Leases may have a provision for percentage rent (particularly in leases for retail businesses). These percentages are often based on the amount of sales made by the lease.

The length of a lease term and any options to renew should be negotiated between the parties. How long is the initial base lease term? Both parties want to make certain that it provides a sufficient amount of time to allow the business to succeed. However, the length of the initial lease term or any extension should provide all parties needed flexibility. Options to renew or extend a lease term are often negotiated between the parties in this regard. A lesseeā€™s ability to sublet should be fully understood by both parties.

Negotiation for alterations and maintenance by the parties should be explicitly set forth in the lease (Ex. Landlord contributions toward build-out/removal of trade fixtures attached to premises at expiration of lease term). Potential lease terms may also include months at the beginning of the lease at either no rent or a substantially lower rent. This is a subject of negotiations between the parties.

Landlords require commercial tenants to maintain liability, property and casualty insurance, and plate glass insurance, etc.. The policies generally name a landlord as an additional insured. The lease should be explicit as to what is required.

All parties must have a full understanding relative to maintenance of the premises. The responsibilities of the landlord and the tenant must be set forth in clear and understandable terms to avoid unnecessary conflict.

Purchases

A real estate purchase may be part of an overall sale of a business. There may be several separate agreements that are negotiated between the parties regarding the purchase and sale of the business.

Negotiation of the terms of the purchase agreement must be fully understood between all parties to the transaction. The contract should be written in short, plain and understandable sentences to avoid ambiguity. Ambiguity can lead to unnecessary and expensive litigation. If all sides understand their rights and responsibilities under a contract, litigation can be avoided.

Be aware of title restrictions, potential environmental problems and items that will be disclosed by a survey of the property. The parties should do a due diligence investigation on the parcel that is being sold and/or purchased. That will make the transaction smoother.

Closing on the property. Reviewing all loan documents (if any) reviewing the title commitment to the property, obtaining and cooperating with the municipal authorities relative to building permits, business licenses, zoning restrictions etc.