“An ounce of prevention is worth a pound of cure.”
You may be familiar with this famous quote by Benjamin Franklin and think advice from the 1700s would be inapplicable for business decisions in 21st century. However, our experience tells us otherwise.
Business owners who try to act as their own attorney when entering into a legally binding document, like a commercial lease agreement, assume a tremendous amount of financial risk. Many intelligent individuals find themselves in the middle of what would have otherwise been a preventable legal or financial mess if they had only sought proper legal advice.
Some common items that often trip up business owners when it comes to commercial leases are the exclusion or deficient use of the following clauses:
1. Attorney Fee Clause: If your contract dispute requires litigation, attorney’s fees and court costs should be paid by the person who loses the litigation. Including this clause acts as a deterrent to the filing of frivolous claims.
2. Use of the Property: Avoid surprises by ensuring that the tenant’s intended use of the property is explicitly permitted in the lease.
3. Approval of Alterations and Signage: A commercial lease should require the landlord’s prior written approval prior to the tenant making any substantial alterations to the property. There should also be language requiring that any alterations made be in a workmanlike manner. Finally, the landlord should have to approve in writing to the tenant’s outdoor signage. This is due to the fact that many signage require making permanent alterations to the exterior of the building.
4. Assignments: A lease should not be assignable to a third-party without the prior written consent of both the landlord and tenant.
5. Repairs: The commercial lease should stipulate that the landlord is responsible for repairs to the external portion of the building and the building’s internal systems (like HVAC and plumbing). The tenant is most often responsible for internal repairs. However, if the tenant is unwilling to shoulder these costs alone, the lease will frequently include a maximum dollar amount that the tenant would have to pay, leaving anything above such an amount the responsibility of the landlord. The amount the tenant would be willing to pay towards internal repairs should be negotiated and included in the terms of the lease.
6. Indemnification: The indemnification clause of a commercial lease should benefit both parties. The landlord should indemnify the tenant against lawsuits resulting from the landlord’s negligence and responsibilities, and vice versa. An omission of this clause could result in catastrophic financial damage to either party.
These clause recommendations are not hard and fast rules, but only guidelines often included in commercial lease agreements. As with any contract, most terms are negotiable. Be forewarned: just because you negotiate an agreement that is “legal” does not mean it is “enforceable” in a court of law. When the financial future of your business is impacted, applying good judgment and seeking professional advice is important. Saving a penny in the short-run by reviewing or preparing your own commercial lease often leads to spending hundreds, if not thousands, of dollars later in legal fees.
For more information on contracts and leases contact Davis & McCann, P. A., Dodge City, KS. We are members of Wealth Counsel, a national consortium of Estate Planning Attorneys and the National Academy of Elder Law Attorneys (NAELA). We focus our practice on providing clients with the best legal advice on estate planning, Medicaid and long-term care planning, business formation, family business/small business succession planning, probate, trust administration, real estate, and related matters.
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