Don’t Lose Your Business to Leasing Landmines
Protecting Your Business from Costly Commercial Lease Mistakes
A lease can open the door to exciting new business opportunities, or it can lead to getting blindsided by unexpected expenses or liability, or to losing your business altogether.
Avoid leasing landmines on the road to business success. Consider these five key issues before signing a lease.
Lease Term: How many years are you bound to this landlord, space, and lease? Can you extend or renew if you want to?
Commencement: When does the term begin? When do you start paying rent? When is landlord required to deliver the space?
Condition of the Premises: Is Landlord Work required before you move in/ Tenant Work? Who is responsible for repairs and maintenance?
Rent, Increases and Additional Costs: Are you paying one lump sum rent amount every month or are you paying base rent plus your share of landlord’s operating expenses such as taxes, insurance, and maintenance expenses? Are there annual or more frequent rent increases? Are the increases a fixed percentage or can they change from period to period?
Right to Sublet or Assign: Can you transfer your lease if your business outgrows the space or you need to relocate or if you decide you need less space at the location or if your business is bought by another business?
What Is the Biggest Leasing Mistake?
Signing Without Understanding What You Are Agreeing To
Would you drive with your eyes closed or jump off the diving board before checking for water in the pool? Of course not.
Then don’t sign a multi year, six figure, legally binding contract that you don’t understand. “Standard” does not mean in your favor. “Everyone just signs it.” is not true and shouldn’t be for you.
Get an expert to review and translate the legalese so you can feel at ease when you sign on the dotted line. Get the peace of mind that comes from understanding, before you sign.
Anonymous Client Example: We worked with a tenant client who signed a lease without having the legalese translated so they didn’t understand that there was no deadline for the landlord to deliver the space in a condition that was usable by the tenant. Two years after the lease was signed, leaks and other bad conditions kept the tenant from moving in, yet the landlord was asking the tenant to start paying rent, and threatening legal action which could cost the tenant six figures. We relied on almost 30 years of experience and a very detailed and comprehensive review of the lease to advocate and negotiate for the tenant to be released from the lease and to have their deposit returned, allowing them to pursue other options.
How to Motivate the Landlord to Deliver the Space on Time?
Aligning Landlord’s Delivery of the Premises with Your Business Needs
Before signing, confirm the landlord is required to deliver the space in a specific, usable condition by a specific date. Common pitfalls include:
Unclear Delivery Terms: The lease should specify the required condition using detailed descriptions, including any demo or construction work to be done and materials to be used, using photos and drawings if applicable and possible.
Not Providing for Construction Delays: The lease should provide consequences for delays depending on the cause and responsible party, if any. For example, if the work is not completed by a certain date, tenant can terminate and move on. If the landlord is the cause of the delay, the tenant gets a free day of rent for each day of delay if Tenant decides not to terminate.
No Remedies for Late Delivery: Landlord may also fail to deliver the space on time because a prior tenant won’t move out, or because the prior tenant or someone else left behind items that landlord needs to remove. Whatever the reason you can’t move in and start operating your business, protect yourself with provisions such as free rent, the right to terminate, and reimbursement for expenses due to delays.
Practical Tip: Conduct a thorough inspection before signing to identify any structural or compliance issues that could delay your move-in and need to be remedied prior to delivery of the space. And take photos.
Can You Access the Space Before Paying Rent to Prepare for Opening Your Business?
Tenant’s Preparation of the Premises: Negotiating Early Access
Securing early access to the space before your rent obligation begins is crucial for preparing the space for the operation of your business. This time allows you to:
Complete Necessary “Build-Outs”: Renovations, electrical work, plumbing, and HVAC installations take time. You may need to coordinate with an architect and a contractor, get landlord approval, government permits, and insurance.
Coordinate with Vendors: Set up furniture, fixtures, equipment, signage, insurance, and IT infrastructure before opening.
Train Staff & Test Operations: Ensuring smooth operations on day one.
Without early access, your business opening could be delayed, costing you valuable time and revenue. Negotiate for:
A specific early-access period for construction or setup without additional rent.
Clear process for landlord approval, or even better, pre-approval, of tenant improvements and scope of work.
Insurance coverage to protect both parties.
Anonymous Client Example: A client was negotiating their first commercial lease, and extensive back-and-forth was needed to clarify respective landlord and tenant responsibilities for improvements. Our team helped them structure a mutually agreeable arrangement in which both landlord and tenant stayed within budget and set up the space as time and cost efficiently as possible.
What Happens If You Fall Behind on Rent or Violate the Lease Terms?
Avoiding Tenant Default: Know Your Rights and Obligations
A lease default can have serious consequences, including eviction, rent acceleration (where all remaining rent becomes due immediately), or legal action by the landlord. Common defaults include:
Monetary Default: Missing a rent payment or failing to cover property taxes or insurance or utilities.
Covenant Default: Violating lease terms, such as failing to maintain the property or subleasing without permission.
How to Protect Yourself:
Notice & Cure Period: Negotiate for time to fix any default before penalties apply.
Internal Reminders: Set up automated alerts for rent payments, insurance renewals, and maintenance obligations.
Understand Landlord Remedies: Understanding landlord’s rights against you if you default will motivate you to avoid default if possible. Some leases even include "confession of judgment" clauses, allowing landlords to obtain a judgment against tenants for the full amount of rent due for the rest of the lease term, plus interest, penalties, and landlord’s legal fees, without notice or an opportunity to defend— to be avoided whenever possible.
Anonymous Client Example: A tenant negotiated a sublease agreement, but the original lease required a 60-day landlord review period. This unexpected delay nearly disrupted the subtenant’s move-in, but because our team had flagged this provision early on, the tenant was able to plan accordingly and avoid last-minute complications.
State-Specific Insights: PA, NY, and NJ Lease Considerations
While commercial lease laws vary by state, here are some key considerations in Pennsylvania, New York, and New Jersey:
Pennsylvania: Confession of judgment clauses are enforceable, meaning tenants can be hit with an immediate judgment for the full amount of rent due for the rest of the lease term and eviction.
New York/New Jersey: Landlords often require a personal guarantee of the performance of tenant’s obligations under the lease (e.g., paying rent and maintaining the space) from one or more tenant principals when dealing with a newly-formed tenant entity or a marginally creditworthy tenant entity.
Good Guy Guarantees are becoming an increasingly common middle ground. The tenant principal Good Guy Guarantor’s obligations terminate if they provide the required amount of written notice to the landlord that tenant will vacate the premises before the end of the lease term, and such guarantor guarantees that, like a “Good Guy,” tenant will (i) continue to make rent payments until the early departure date, and (ii) leave the space in the condition required by the lease.
Signing a commercial lease is one of the most significant commitments a business owner can make. Whether you’re opening a restaurant, leasing a warehouse, or securing an office space, your lease agreement dictates your rights, obligations, and financial commitments for years to come.
Protect Your Business: Get Legal Help Before Signing
Commercial leases are complex, and small mistakes can cost your business thousands of dollars. Before you sign, ensure you fully understand your obligations and rights.
Contact
Eric Diaz
Founder and Managing Partner
diaz@larediaz.law