Leasing is a tricky business, for both, landlords and tenants. Landlords usually rely on a leasing attorney for more law-based commercial leasing documents, but this option may not always be available for tenants (mostly due to limited expense budget).
There are three areas where a commercial lease is different from a residential lease:
- A tenant’s rights are almost all governed by the lease unlike residential lease where these are protected under the law.
- At the end of the lease period, the law does not limit how much the landlord can increase the rent. In case of a residential lease, for a regulated apartment, the law limits the landlord for rent being incremented.
- Commercial lease regulations do not obligate the landlord to renew the lease whereas, in a residential lease, it is mandatory for the landlord to offer renewal of the lease.
The lease is, of course, made to heavily favor the landlord and is difficult to understand because of its length and legal jargons in place. All matters of conflicts related to commercial lease Brooklyn properties are subjected to jurisdiction under NYC.
A handy summarised list of clauses from acommercial lease can be a source of reference for a tenant.
Assignment & Subleasing
Businesses are unpredictable. There are instances when you wanted to transfer the rights of your business to some other entity or individual or you may outgrow the current space and want to shift to new bigger place. In case these instances occur before the end of your current tenancy period, the assignment and subleasing clause come into practice. Check for the terms of how the things will be settled under such circumstances.
One is base rent which is meant to be paid on the monthly basis in lieu of using the property while there are other additional rent heads like operating expenses and real estate taxes. The amount of taxes can increase over time. Calculate the total foreseen expenses and do not forget to ask your landlord what all additional expenses are valid in the chosen area.
Utility service charges like electricity, sewage, water, heat, gas, etc. need to be added to know the exact expense figure.
Whether to go for a short-term lease (5 years or less) or the long-term lease (more than 5 years, usually 10+ years) is a matter of consideration. The business which is not stable yet usually settles down for short-term lease while the more established ones prefer the long-term lease. The former selection helps you to move-on if things are not working as were expected while the latter one gives you a relief from increment in the base rent amount, for such a longer period.
The renewal of the lease is an option available with the tenant. But it comes with either fixed rent increase (2-3% each year) or fair market rent which is set by looking at similar property’s rent in the area (though, there must be a set limit of increase). You should discuss which one of these is applicable in your contract.
Permission to Use&Alterations
There is always a need to alter the rented space. The lease should clearly define the acceptance and thoughts of landlord against the changes made by tenant in the property.Some spaces are clearly marked appropriate for certain kinds of businesses. Choose the one that fits your business need. Also, there must be specific mentions about who would pay for which type of alteration.
The security deposit claim is the biggest issue of conflict, not in Brooklyn but around the world. The amount of security deposit for a commercially leased property may also depend upon your business’s financial condition. Usually, it amounts to 2 month’s base rent. The only idea behind this security deposit provision is to prevent bad debts and unacceptable property damage from the tenant’s side.
Leases contain indemnification provisions to determine the name of the person or entity who could be held responsible for an incident of damage in the rented space and on the property.Tenants can prevent such claims for personal injury or property loss by opting for insurance. Commercial General Liability Insurance and Personal Property Insurance aresufficient enough to cover most of the involved risks.
A contingency termination clausefor a commercial lease is a must-to-be-included in the document. This clause would give a right to end the tenancy early, in case the business fails to get established due to fault in bearing license or permit or certificate of occupancy.
For the harmonious relationship between the tenant and the landlord, everything agreed by both the parties must be written in the commercial lease. Tenants should not depend on the oral statements from the landlord and vice-versa.