What should a Tenant be wary of in a Commercial Property Lease?
It is a known fact that most business premises are rented, and the terms and conditions of almost all rented property are governed by a lease, which is entered into between the tenant and the landlord.
Whether the property is owned by one of the large financial institutions or a small property owner, leases are usually drawn up in standard format and are biased towards the landlord, i.e. geared towards protecting the landlord’s interests. Landlords are seldom open to negotiating the terms of such leases, except in exceptional cases. Tenants should, therefore, read the terms and conditions carefully and should not be afraid to challenge any provisions that they consider to be unfair or prejudicial to themselves.
If your rental is being handled by a reputable broker, you have nothing to worry about. A broker facilitates thousands of leases, is familiar with the legalities of such documents and will negotiate a deal that protects both parties.
Although it is not advisable to deal directly with a landlord, sometimes it is unavoidable, and in such instances, tenants should take particular note of the following potential pitfalls in standard lease agreements:
- Tenants should pay particular attention to clauses relating to renewal options, which more often than not, do not give the tenant any say in the matter! If you don’t want to end up “on the street”, once the period of the lease is up, make sure proper renewal option terms are clearly stated in the lease.
- If a tenant waives his claim against the landlord in respect if an interruption in service supply, i.e. electricity, water etc, and the landlord fails to pay the relevant authorities, the tenant will have no claim against the landlord should these services be terminated. Tenants should be particularly vigilant when dealing with smaller property owners.
- Landlords even seek to protect themselves from being hauled over the coals for their own wrongdoing!! How? The Landlord indemnifies himself against any wrongful or negligent conduct by himself or his representative.
- Breach clauses which do not require the Landlord to give the Tenant the opportunity to rectify the breach entitle the Landlord to take any steps he deems necessary, without notifying the tenant, and could even end in the termination of a lease, without consultation or notice. Breaches are often not intentional and arise due to an admin error. Protect yourself against disastrous consequences, should this occur!
- Leases often contain clauses that entitle the landlord to make changes to the property, without prior consultation, and thereby cause the tenant to be inconvenienced and prejudiced in terms of loss of business, without any compensation.
Whilst these are the most common pitfalls, they are by no means the only ones.
If you are not being assisted by a reputable property broker, never sign a lease before taking professional advice. Even if you are unable to renegotiate the terms of the lease, at least you will be made aware of the pitfalls, and as Sir Francis Bacon so aptly put it, “Knowledge is Power”!
Reference: Law Article on Leases of Commercial Property from a Tenant’s Perspective, by Frans van Hoogstraten, Bowman Gilfillan Attorneys