Commercial Lease Agreements

Understanding Our Commercial Lease Agreement Services

Our business attorneys provide crucial legal services related to commercial lease agreements, a critical area for many businesses. These services encompass the development, drafting, review, and negotiation of such agreements, ensuring that a company’s interests are well-protected.

At the development and drafting stage, we work closely with the client to understand their specific needs and objectives for the commercial lease. We draft comprehensive, clear, and legally sound lease agreements that adequately address crucial aspects such as lease term, rent amount and adjustments, tenant improvements, responsibility for repairs and maintenance, insurance requirements, termination conditions, and more. The aim is to create a lease contract that reflects the business’s intentions and protects its rights.

The review process involves an in-depth examination of existing or proposed commercial lease agreements. Our attorneys scrutinize the lease terms to ensure that they are fair and equitable, and that they align with the client’s business objectives. We highlight any potential risks, unfavorable terms, or ambiguities that could have a negative impact on the client’s business operations. The goal is to ensure the client fully understands the lease terms and implications before entering into the agreement.

Negotiation is another key service offered by our business attorneys in this context. Armed with a deep understanding of the client’s needs and a comprehensive knowledge of commercial leasing law, our attorneys negotiate with the other party to arrive at lease terms that are most favorable for the client. We skillfully navigate these often complex negotiations, addressing issues as they arise and ensuring the final lease agreement serves the client’s best interests.

In summary, the services provided by our business attorneys in connection with commercial lease agreements are fundamental for businesses seeking to secure the right premises for their operations under terms that best align with their business goals and risk tolerance.

Types of Commercial Lease Agreements

Commercial lease agreements come in various types, each with its own implications for the landlord and tenant. Understanding the specifics of each type is critical for businesses seeking to lease commercial property.

A net lease is a type of commercial lease where, in addition to the base rent, the tenant is also responsible for certain costs associated with the property. These costs may include property taxes, insurance, and maintenance costs. The exact responsibilities can vary, so the lease agreement should clearly outline what the tenant is expected to cover.

A triple net lease, often noted as NNN lease, is a specific type of net lease where the tenant agrees to pay all real estate taxes, building insurance, and maintenance on the property, in addition to any normal operating expenses. This type of lease can be beneficial for tenants as the base rent is typically lower, but it also means taking on more responsibilities and potential costs.

A gross lease, also known as a full-service lease, generally requires the tenant to pay a single lump sum rent which covers all property-related costs that the landlord would typically pay. These costs include property taxes, utilities, insurance, and maintenance expenses. While this can make budgeting easier for the tenant, the base rent is typically higher to offset the landlord’s costs.

A modified gross lease is a hybrid between a net lease and a gross lease. In this arrangement, the tenant pays base rent and some, but not all, of the operating costs, taxes, and insurance for the property. These additional costs may be split between the landlord and tenant, or they might be wholly the tenant’s responsibility. The exact distribution of these costs should be detailed in the lease agreement.

Understanding these types of commercial lease agreements can assist businesses in choosing a lease that fits their operational needs and financial capabilities. Consulting with a business attorney is recommended to ensure that the chosen lease agreement is legally sound and aligns with the business’s goals.

Typical Issues Between Landlord & Tenant

Commercial lease agreements often present a complex dynamic between landlords and tenants, and multiple issues may arise over the course of such a relationship. Understanding these potential issues can help in effectively managing and preventing disputes.

One common issue revolves around the maintenance and repair responsibilities. The terms of the lease may not always clearly define who is responsible for certain maintenance tasks or repairs, leading to disputes. For instance, a disagreement may arise over who should pay for significant repairs like structural issues or HVAC system failures.

Rent increases are another common point of contention. If the lease agreement allows for periodic rent increases or doesn’t adequately cap such increases, tenants may be faced with sudden, unaffordable rent hikes.

Disputes can also arise from lease renewal terms. The tenant may assume they can renew the lease under the same terms, but the landlord may have different plans or conditions for renewal. This can lead to uncertainty and potential conflict near the end of the lease term.

Issues may also emerge concerning alterations or improvements to the leased premises. While the tenant may want to make changes to fit their business needs, the landlord may have restrictions on the type or extent of alterations allowed.

Finally, disputes can occur when a tenant wants to assign the lease or sublet part of the space to another business. The lease agreement may strictly control or prohibit such arrangements, leading to disagreements if the tenant’s business needs change.

Resolving these issues often requires open communication, negotiation, and a clear understanding of the lease agreement terms. Having a knowledgeable business attorney review the lease agreement can help anticipate potential issues and ensure the lease terms align with the tenant’s business needs and expectations.

Personal Guaranty Agreements In Lease Agreements

In the context of commercial lease agreements, landlords often request personal guarantees from tenants as an added layer of financial protection. Essentially, a personal guarantee serves as a promise from the tenant’s owners or principals that they will personally satisfy the financial obligations of the lease if the business itself is unable to meet those obligations. This means that if the business defaults on the lease, the landlord can pursue the personal assets of the guarantor to cover any outstanding rent or costs.

The rationale behind this request lies in the inherent risks associated with leasing commercial property, especially to small businesses, startups, or businesses with limited credit history. Even with a security deposit, the landlord could be left with substantial losses if the tenant’s business fails or if the tenant otherwise defaults on the lease. By securing a personal guarantee, the landlord has an additional means to recover those losses.

The duration of a personal guarantee can vary and is subject to negotiation between the landlord and tenant. Some guarantees run for the entire term of the lease, providing the landlord with long-term security. However, this can pose a significant risk for the guarantor, tying their personal finances to the success of the business for an extended period.

As a compromise, some leases feature a “burn-off” or “burn-out” provision, where the personal guarantee gradually diminishes or ends after a certain period, provided the tenant has consistently met their lease obligations. This arrangement can provide the landlord with initial protection while eventually alleviating the guarantor of the personal financial risk.

While personal guarantees provide added security for landlords, they pose significant risks for the guarantors. It’s crucial for tenants and guarantors to understand these risks and to consider seeking legal advice before signing a personal guarantee in connection with a commercial lease agreement.

Contact Our Chicago Business Attorneys

We understand the challenges and intricacies that come with negotiating and managing commercial lease agreements. Our team of experienced business attorneys is here to guide you through every step, ensuring that your lease serves your business’s interests and helps drive your success. Whether you’re entering into a new lease, renegotiating an existing one, or facing issues with your landlord, we’re ready to provide the legal support you need. Contact our law firm today to discuss how we can help with your commercial lease agreement needs. Let us assist you in building a secure and successful foundation for your business operations.