It's Our Standard Lease. Everyone Signs It.
That's a statement that most tenants hear. The landlord hopes the response is, “Well, I guess it must be ok if it’s the standard. Where do I sign?" Stop—haven't you been reading other chapters of What They Forgot to Teach You at Tenant School?
Everyone prefers the easy way out. As we noted in other chapters, what the landlord loves is a big tenant with a long lease and AAAA credit. The reality is that that doesn't happen often. Rather, most buildings (other than the single user, big box, industrial buildings) are made up of a mix of many small tenants and a few larger users. Each probably operates a different type of business, has different products, and has different needs. With such variation, why then would you sign the same standard contract everyone else in the project did?
Here are a few suggestions, before you actually have your lawyer read the lease, make sure to look for the following:
Take a long look at your business plan. What are some of the issues you may be facing during the Term? Expansion? Contraction? What about a merger?
Read the lease carefully. Sure, it's boring. It's probably in small print too (which is sometimes a secret plot just to discourage tenants from reading the lease). Still, read it.
Check the obvious stuff. Make sure items like square footage, rent increases, start/finish dates are correct.
Now, we’re on to the fun stuff.
Big companies who have their own real estate department, in house attorneys, and lots of locations are used to modifying leases to their standard form. Landlords are used to negotiating those changes. After all, those are the so-called “elephants” we talked about in another chapter. If you don't fit that profile, you're going to have to do a little work to protect yourself. Every broker will read your lease to make sure the dates, price, and square footage are correct. That's what they base their commission on. Lawyers will look for the “oh my gosh" major red flags. You have to be aware of issues that affect your business.
If the lease states you have 2700 Rentable Square Feet (RSF), can the landlord change that during the term? Most leases do give them that right.
If the “elephant" wants your space, can the landlord move you? Most leases say you can be moved into "similar" space and the landlord will pay for some moving costs. What if the new space is larger? What if you have specific business machines that require a substantial cost to move? Does the lease protect you? How long do you have to tell the landlord you will accept the move and can you reasonably refuse or have the option to cancel the lease? What if the landlord wants you to indemnify him against mostly everything, but does he indemnify you?
Did you read your "Additional Rent" or "Common Area Maintenance" sections? If the landlord spends big bucks on tenant improvements for the “elephant," do those costs get passed on to you? How about other charges made against other tenants and not for your benefit?
What happens if the landlord sells the building? Goes bankrupt? Can the new owner just "kick you out?"
You may be in default if you do not respond to the landlord or make payments on demand. If you sign the checks and are in Chicago or New York drumming up business for a week, you may come back to an empty office. In reality, it may mean a lot of unnecessary hassle you could have avoided had you modified the lease to give you five or ten business days to respond.
As we stated last month, let all your lease requirements be known early on. Landlords love to hand a lease to a small tenant and have them sign the standard lease. They’ll say, ”We can't make changes to the lease for such a small space." Smaller tenants, more often than not, need to be more specific on their lease requirements than large elephants. A small problem may have a far greater impact on a smaller tenant than it would on the larger user, who can probably bury the problem under a corporate blanket. While the space may be only 1500 RSF out of the Landlord's 250,000 SF building, it’s your 1500 RSF.
In other chapters we’ll share some real life horror stories and provide tips on modifying your lease to best protect your business.