Basic Commercial Real Estate Lease Clauses - Do You Know Them

Business Articles | July 7, 2011

Do you know what commercial real estate lease clauses to include a commercial real estate lease agreement? Learning basic commercial real estate lease clauses will help you structure a commercial real estate lease agreement correctly. Check out this article for key clauses to know.

• Describe the premises
• Specify the lease term
• Indicate the rental or lease payment amount

Many times, you will be dealing with a five-year lease. Therefore, you need to explain in the lease, how rental increments will happen every year over the period of the lease. You could also include additional tenant conduct, indicating what tenants can or cannot do. This is where you would specify whether they could assign the lease, sublease it, or limit it to sub-leasing (subject to landlord's approval).

Signage
Signage becomes a problem in some places such as Florida, because of hurricanes. One of the most serious threats to life and limb in a hurricane is not the wind per Se, but the debris that the wind blows around.

If you have a sign that is not well anchored and a hurricane comes along and tears off chunks of glass or plastic, these can become deadly projectiles. Hence, you get into a lot of code issues about how signage has to be constructed, type of materials, and other similar issues. So, in your lease, you must ensure that it includes a clause that specifies that no signs can be erected on the property without:

1. Landlord approval
2. Proper permitting through the local county officers or local city officers, so that signs meet code
and conform to local rules and regulations

Additional Tenant Expenses
Include language in the lease that itemizes the expenses for which the tenant will be responsible, such as taxes, utilities, and insurance. A prudent policy is to require that all your tenants carry a million dollar liability policy on anything that happens on the premises.

Otherwise, if something happens as a function of their business and they are not sufficiently covered, the problem rebounds to you, because it's your building. Be sure that your tenants furnish proof of insurance before you allow them to occupy the premises.

Tenant rights, landlord services, common areas, and common area expenses that you are going to incur and pass on to the tenant, are all standard clauses. Other clauses may pertain to preserving the premises, making repairs, maintenance, and surrender of the property.

Tip: If your tenants want to change something in the building, they must come to you for approval. After all, it's your building!

You should also consider the rules for alterations, surrender, damage destruction, and protecting the landlord's subordination. Be sure to specify that you have the right to enter and inspect the premises.

Other commercial real estate lease clauses to consider are those for indemnification- being held harmless, evidence of default and remedies, security for performance, security deposits, and other similar rights. Obtain an experienced real estate attorney who specializes in commercial leases, and can review and revise your lease appropriately.

Building Owners and Managers Association (BOMA)
BOMA publishes standard methods for measuring floor area in industrial buildings. You may not think this subject is an important issue, but there are many ways to measure that can affect your rental income.

Landlords have been sued, sometimes after many years, for leases that were found to include inaccurate square footage descriptions. To protect yourself always use the BOMA method and include that description in one of your lease clauses.

Including the proper commercial real estate lease clauses in your commercial real estate lease agreement will help protect you and your tenants, which is always good business.

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commercial real estate investing

Article Tags: Basic Commercial Real, Commercial Real Estate, Real Estate Lease, Estate Lease Clauses, Basic Commercial, Commercial Real, Real Estate, Estate Lease, Lease Clauses

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ABOUT THE AUTHOR

Gary began his r.e. career in Honolulu in 1966, selling land and homes as head of one of Hawaii's largest brokerages, and has now sold and leased real estate in Idaho, Virginia, Puerto Rico and Florida. For the last 30+ years Mr. Tharp has been one of the leading commercial investment r.e. brokers in Orlando, Florida and a nationally known mentor. Gary is widely regarded in commercial real estate, having developed tools and systems of commercial property evaluation that have become industry standards used by professionals nationwide. He is in demand by lawyers seeking expert witnesses in r.e. cases. With development experience ranging from office buildings to industrial parks, Gary is Florida Partner for the Lynxs Group, national developer of air cargo facilities, Fellow of the faculty of the CCIM Institute, and Board of Advisor with HIS Real Estate Network, commercial real estate buying group.