If you are a new business owner who is taking the important step of leasing your first commercial space, you should be aware that commercial leases are subject to some unique considerations that would not necessarily apply to residential leases, such as apartment leases. In many jurisdictions, commercial tenants are not guaranteed the same rights as residential tenants. In the commercial leasing environment, both tenant and landlord are persons or entities engaged in business pursuits; as such, a commercial lease is generally viewed as an equal bargaining transaction between the two business interests. For example, in New York, the respective rights and duties of the landlord and tenant are almost entirely defined by the terms of the lease itself, with very little statutory or regulatory protection for the parties. In plainer terms, the courts will not be sympathetic to issues arising out of your failure to thoroughly read and understand the terms of your commercial lease.
For this reason, it is crucial to have an NYC commercial real estate attorney experienced with commercial leasing review your lease prior to you signing it. At Avenue Law Firm, our attorneys can assist in verifying that all crucial aspects of the lease are thoroughly examined, potential risks are identified, and any necessary negotiations or amendments are made to protect your interests. Contact us today at (212) 729-4090 to schedule a consultation.
While this list is by no means all-inclusive, here are some important things to consider when negotiating a commercial lease:
Requirements for Leasing a Commercial Space
In New York’s competitive real estate market, it’s essential to approach the leasing process with a well-informed strategy and a clear understanding of your business’s needs. Here are the refined steps to guide you through the intricacies of leasing commercial property in the city that never sleeps:
- Define Business Needs and Budget: Clearly articulating your business requirements and financial constraints is the cornerstone of a successful property search. Size, location, and specific amenities should be carefully weighed against your strategic business objectives and financial capabilities.
- Research and Understand the Market: Staying abreast of market trends is crucial, as they can directly affect lease conditions and your business’s long-term viability in a specific area. Your ideal location will balance visibility, accessibility, and cost-effectiveness.
- Seek Professional Guidance: Engaging a knowledgeable commercial real estate lawyer can make all the difference. They act as navigators through the complex terrain of New York’s commercial real estate landscape.
- Visit Potential Spaces: Experiencing the space firsthand is irreplaceable. This is where you visualize your business coming to life. It’s important to assess not only how the space meets current needs but also how it can adapt to future growth. Think of each visit as a chance to mentally place your brand within the four walls, ensuring it’s the stage where your business will thrive.
- Review Lease Terms Carefully: The lease agreement defines your rights and responsibilities for the duration of your tenancy. Scrutinize everything from the fine print to the broad clauses, and don’t hesitate to seek clarifications or amendments. Your attorney can assist you in verifying that everything is in order and can help you avoid any potential legal issues.
- Perform Due Diligence: Look under the hood before you commit. This is your due diligence to safeguard your investment. Verify the condition of the property, compliance with relevant laws and regulations, and the landlord’s credibility. Working with a skilled attorney can provide great insight into the property.
- Negotiate the Lease: The art of negotiation can make a significant impact on your bottom line. It’s not just about the monthly rent—it’s about the total cost of occupancy. This includes potential benefits such as tenant improvements or leasehold incentives. A well-negotiated lease can provide financial flexibility, allowing you to invest more in your business’s growth.
- Finalize the Agreement: Approaching the lease finalization as the culmination of a strategic process ensures that you’ve covered all bases. It’s the moment to ensure that every negotiated term has been captured accurately and reflects the understanding between you and the landlord.
By meticulously following these requirements, you can confidently navigate the complexities of commercial leasing in New York City. This journey, when done correctly, not only secures a physical space for your venture but also lays a foundation for operational success and a stable business environment. Consult a skilled commercial real estate attorney from Avenue Law Firm for quality legal assistance tailored to your circumstances.
| Step | Purpose |
|---|---|
| Define Business Needs and Budget | Establish criteria for the property search based on business objectives and financial limits. |
| Research and Understand the Market | Stay informed about market trends to negotiate better lease terms. |
| Seek Professional Guidance | Navigate the complexities of commercial real estate transactions. |
| Visit Potential Spaces | Evaluate how well spaces meet current and future business needs. |
| Review Lease Terms Carefully | Ensure understanding of rights and responsibilities as a tenant. |
| Perform Due Diligence | Verify the property’s condition and compliance with laws. |
| Negotiate the Lease | Optimize financial terms and secure tenant benefits. |
| Finalize the Agreement | Confirm all negotiated terms are correctly documented. |
Rent Provision in a Commercial Lease
This is not as straightforward as a rent clause in a residential lease. In addition to monthly rent, your landlord may ask you to pay real estate taxes and maintenance costs. Make sure you understand if operational costs such as electricity, trash removal, water, and property taxes will be handled by you or by the landlord.
Many commercial leases also include rent escalation clauses, which increase rent periodically, often tied to a specific percentage or indices like the Consumer Price Index (CPI). Understanding these terms is vital to avoid unexpected financial burdens over the lease term.
In some cases, landlords may offer rent concessions to attract tenants or incentivize long-term lease agreements. These concessions, such as covering the first month’s rent, reducing the security deposit, or providing financial allowances for tenant improvements, can reduce initial costs. While these incentives can provide financial flexibility, they must be carefully documented in the lease agreement to avoid misunderstandings.
A skilled NYC real estate attorney can help you analyze the full scope of the rent provisions, including any concessions, to ensure that your interests are protected and that you understand the financial obligations over the term of the lease.
Who Is Responsible for Improvements, Alterations, and Repairs?
In residential leases, the landlord is usually responsible for all repairs and maintenance of the property. However, commercial properties are commonly rented “as is”. Unless specifically stated in the commercial lease, the landlord does not have an obligation to maintain or repair your premises, or to maintain the common areas. It is paramount that you understand your obligations and have a financial plan for dealing with potential emergency maintenance that you may be held responsible for.
Can I Sublease My Commercial Space?
Unforeseen circumstances can pop up for the best of us. If you no longer need the entire commercial space for yourself, will you be able to sublet all or a portion of it? The right to sublease is governed by your commercial lease. Make a note of whether or not subleasing is permitted. Even if it is, most commercial leases require you to get your landlord’s consent prior to subleasing the space. It is not uncommon for landlords in New York to charge tenants for such consent or to request a portion of the rent that you will receive from your tenant. Therefore, it is very important to carefully review the portion of your commercial lease agreement that deals with your rights to sublease the rented space and to discuss the process and all the fees with your landlord prior to signing the commercial lease.
Do I Have an Option to Renew My Commercial Lease?
It’s always good to plan ahead. Let’s say that you signed a five-year commercial lease and your business is booming at the end of this term. Many businesses depend on their location and moving may result in your business losing clients. Would you really want to be forced to pack up and move to a new location, possibly disturbing business and confusing your clients? A good commercial lease attorney will always advise you to negotiate an option to renew the lease.
Will This Commercial Lease Work for Me?
You may have found a perfect space, but will the lease work for you? Many commercial leases have restrictions and it’s important to consult with a real estate attorney to make sure that you will be able to run your business without breaking any of those restrictions. Will you have 24/7 access to the space? Can you place a sign? Can you renovate the space? Will your use comply with the certificate of occupancy? Are there any noise restrictions? Typically, commercial leases contain provisions that state you can’t disturb or interfere with the business operations of other tenants. For most tenants, this is not an issue. But for some, such as pre-K, recording studios, and large healthcare facilities, such provisions can be deal breakers.
Signing a commercial lease is a big step and one that you may have to live with for years or even a decade. It is a good idea to consult with an experienced real estate attorney before signing anything. Your attorney will have your best interests in mind and will often be able to work with the landlord or the landlord’s attorney to come up with terms more favorable to you and your business.
Breach of Contract
What will happen if one party does not comply with the terms of the commercial lease? Is there a procedure or timeframe for written demands before litigation? What about mediation or arbitration? If it does come down to litigation, who is responsible for attorney’s fees, etc.? Make sure that the terms are clear and fair before signing.
Tips For Leasing Commercial Property
Leasing commercial property in New York City requires careful consideration of several critical factors to safeguard your business interests. Here’s a concise guide to help you make informed decisions when entering into a commercial lease.
- Understand Your Space Requirements: Before signing a lease, thoroughly evaluate the space to ensure it meets your current needs and allows for future growth. Consider the layout, size, accessibility, zoning compliance, and any specific requirements like storage or technology infrastructure.
- Review Lease Terms Thoroughly: Pay close attention to the length of the lease, renewal options, and termination clauses. It’s vital to have clarity on what happens at the end of the lease concerning property restoration and the conditions under which you can renew or exit the lease.
- Negotiate Rent and Additional Costs: Confirm the base rent along with any additional costs, including maintenance fees, property taxes, and utility expenses. Negotiate these terms and seek clarity on rent escalation clauses. Request a rent abatement period if the space requires substantial modifications before opening.
- Tenant Improvements: If the space needs modifications to meet your business requirements, it’s essential to negotiate clear terms regarding responsibility for these changes and their associated costs. This could include anything from structural changes to cosmetic upgrades. Sometimes, landlords will offer a tenant improvement allowance.
- Confirm Insurance Requirements: Clarify who is responsible for maintaining various types of insurance. NYC leases typically require tenants to maintain liability insurance, with landlords retaining property insurance. Confirm coverage requirements, naming the landlord as an additional insured if stipulated, and ensure your policy complies with the lease terms.
- Legal Review and Professional Advice: Always have a commercial real estate attorney review the lease documents before you sign. They can confirm that all agreements are correctly documented and offer adequate legal protection for your situation.
Following these tips, you can approach commercial leasing with confidence knowing you have taken steps to protect your business interests in the bustling New York City market. For tailored guidance, contact a reputable real estate attorney from Avenue Law Firm today by calling (212) 729-4090.
Written by Peter Zinkovetsky, Esq
