Five Lease Terms That Always Matter

By Don Catalano SIOR

Even one word in a commercial lease has the potential to make a huge difference in the meaning of the document. This is why it’s always a good idea to have both a commercial real estate broker and a skilled real estate attorney review the document. That being said, though, there are some lease terms that always make a difference. Here are five to watch out for:

1. Dates

Leases are filled with dates, all of which mean slightly different things. While definitions of these lease terms vary from form to form, here are some rules of thumb:

• The effective date is the date from which milestones get calculated. Any rent increases will usually come on the anniversary of this date.
• The rent commencement date is when you have to start paying rent
• The move-in date is when you start occupying the space.
• In addition, you’ll want to pay attention to your lease expiration date and any option notification dates.

2. Rent

Rent is rarely as simple as it seems. Many leases include base rent and reimbursements. They also may have additional rent (for building services like parking or signage) as well as language that allows the landlord to increase the rent on lease anniversaries (usually annually) as well as for other reasons.

3. Reimbursements

Most tenancies include lease terms that require you to reimburse some or all of the building or park’s operating costs. While the industry has standard terms to describe the type of lease and reimbursement structure you have like “triple net,” “modified gross” or “full service,” in practice, the only way to know exactly which types of reimbursements you will have to make is to carefully review your lease.

4. Options

Just about every lease has an expiration date upon which you no longer have to pay rent but no longer can occupy the space. However, you may have options that allow you to stay past the lease’s initial expiration date. These can come in a few different forms.

• Holdover clauses. These lease terms specify what happens if you stay past your lease. Typically, your tenancy will end up going month-to-month. Don’t be surprised if your monthly rent also goes up during the holdover period.
• Options to renew. Your landlord might have also included lease terms that let you add time to your lease at predetermined terms and at either a predetermined rent or at rent that gets calculated based on a formula. Bear in mind that these options usually have strict dates that you must follow.
• Options to purchase. If you really like the space, you might even have an ability to purchase the entire building on predefined terms.

5. Rules and Restrictions

Pay careful attention to the rules in your lease. Many arrangements might actually be a breach of your lease. Open floor plans that increase employee density (and parking utilization), bring-your-pet-to-work days and in-office catering can run afoul of rules against overusing parking, bringing animals into the space and having food preparation.