Ky Commercial Lease Attorney
The Bluegrass State is a great place to do business.
Whether your company is just getting off the ground or is established and expanding, one of the largest expenses and biggest headaches is leasing commercial space. There are huge differences between commercial and residential real estate leases; the risk and liability exposure involved in commercial real estate transactions are much higher. Given what’s at stake, it is essential to get a legal opinion on a commercial lease – and the Fayette County business lawyers at Bunch & Brock can help.
We have over 35 years of experience counseling Kentuckians on their business matters, including analyzing, negotiating, and explaining commercial leases. We are dedicated to helping those who have been handed a lease that is likely to be heavily skewed in favor of the landlord. We take the time to fully understand your situation and discuss your options.
Types & Terms
Even in a tenant’s market, negotiating a favorable commercial lease is a daunting, complicated process that requires research and due diligence. Oftentimes, the initial lease agreement offered by a landlord advances their interests because they expect (and hope) that potential tenants will simply sign the lease without really understanding it. However, commercial leases are not standardized, which means that many of the clauses can be negotiated so they are fair to both parties. Commercial landlords often expect business owners to sign a personal guarantee of liability to pay the rent if the business is not able to pay. It may be possible to have this term expire after a period of time, once the business has shown a track record of payment.
There are three main commercial lease types:
- Percentage lease – tenant pays a base rent based on square footage plus a percentage of sales once a breakpoint is met
- Net lease – tenant pays a base rent based on square footage plus taxes and insurance. Common area maintenance fees are also a possible lease term.
- Gross lease – all fees included in the price per square foot. Rent is usually higher because cost of utilities, repairs, insurance and taxes are included, but doesn’t vary month to month.
Most commercial leases are by the month or the year, depending on how many square feet are rented. An annual rent increase clause is typically included in a lease, based on a percentage. A tenant may be able to negotiate a one- or two-year grace period and request a cap on the yearly percentage increase. Landlords tend to prefer longer lease terms, while most tenants do better with short lease terms with multiple options to renew. Generally, the longer the term, the better position you are in for negotiating other parts of the lease.
Obviously, the more space you rent, the more you will pay – and that’s true for both the useable square footage (the space you actually use for your business) and the rentable square footage (your proportionate share of the building’s common areas). The “load factor” or “common area factor” refers to shared spaces on a single floor as well as within an entire building and is a way for the landlord to charge rent on a pro-rata share for public spaces such as restrooms, lobbies, and equipment rooms. It varies from building to building and should be addressed before the lease is signed. Some unscrupulous landlords have been known to inflate the rentable figure, though the more reasonable ones will accept a revision to the lease that the measurement be verified through certain standard methods.
Other key negotiating points include knowing what is and is not allowed for signs/advertising, what improvements you are allowed to make, whether the space can be sublet, whether the space can be assigned and the amount of the security deposit. If your business depends on foot traffic, you may wish to add an exclusive-use clause, preventing the landlord from renting space out to one of your competitors, or a co-tenancy clause, allowing you to break your lease if an anchor tenant leaves and is not replaced in a specific amount of time. You may even be able to negotiate better terms in the event of a default regarding how soon the landlord can file eviction proceedings, whether you can pay a few months’ rent as a penalty rather than the amount owed on the lease and how long you have to vacate.
Having a skilled lawyer bargain and negotiate a commercial lease on your behalf can be an invaluable asset for years to come. Whether you are looking for your first space or want to renovate existing space, make sure your legal interests are protected. The Lexington commercial lease lawyers at Bunch & Brock are committed to providing each of our clients with a high level of personal service, and we will walk you through each of the steps that should be taken. We have decades of experience successfully navigating the various challenges of drafting leases and making them the most financially favorable to tenants. We can help you. To schedule an initial consultation, please call 859-254-5522 or fill out this online form.