Commercial Leases:  A Checklist

What follows is a list of some of the most commonly disputed issues facing the parties to a commercial lease.  It is by no means an exhaustive list.  Both the tenant and the landlord should seek the advice of competent real estate counsel before entering into a lease, even if all of the issues described below are described and agreed upon by the parties.

1. 1.Does the lease reflect the financial arrangement between landlord and tenant?  Does that include a graphical and verbal description of the leased premises?
   

2. 2.Are the premises in a historic building?  If so, municipal and Federal rules may affect what improvements may be made to the building and what uses may be permitted.
   

3. 3.Tenants should request a copy of the most recent tax statement from the landlord.
   

4. 4.Are electrical power and water separately metered for each space?  If not, how should they be allocated?
   

5. 5.Assignment and sub-leasing:  It must be allowed in some circumstances.  What does the lease provide?
   

6. 6.Alterations permitted by the lease should be described in detail along with the financial obligations of the parties for those alterations.
   

7. 7.Security Deposit.  California law favors the tenant.  It is common practice for commercial landlords and tenants to waive the provisions of Civil Code Section 1950.7 which requires the landlord to deposit commercial security deposits in separate interest bearing accounts for the benefit of the tenant.
   

8. 8.It is advisable for the lease to describe the particular use to be made of the premises.
   

9. 9.Who will maintain the premises?  If the tenant is to maintain the interior only, then maintenance obligations regarding systems such as sprinklers, air conditioners, plumbing and electrical should be carefully described.
   

10. 10.Signage is usually governed by building rules and by local ordinances.  Who will be responsible for obtaining City approval for signs and who will pay to purchase and install the signs?
    

11. 11.If the tenant will operate a retail business, when will deliveries be permitted?  What entrance will be used for those deliveries?
    

12. 12.If the tenant will be making improvements to the space, will the landlord have the right to determine the identity of the contractor?  Has the landlord established building standards for improvements?  Is there a building standard color board?  Will the landlord have the right to review plans for tenant improvements before work begins?
    

13. 13.Who will be responsible for obtaining a certificate of occupancy for tenant’s planned use?
    

14. 14.What will be the tenant’s insurance requirements?  Will the landlord be named as an additional insured on the tenant’s liability policy?  Will the carrier be required to notify the landlord in the event the policy is canceled?
    

15. 15.If a real estate broker was involved in the lease, responsibility for the broker’s commission should be clearly described.
    

16. 16.The lease should include provisions describing the tenant’s responsibilities for storing, using and disposing of hazardous materials and waste.
    

17. 17.Non-disturbance, attornment and subordination clauses define the relationship between the landlord’s lenders and the tenant in a case where the lender is foreclosing.  In these times, these clauses are especially important.
    

18. 18.Will the tenant have an option to extend the lease term?  If so, the terms of that extension should be described.
    

19. 19.Does the tenant seek an option on adjoining space?  What will that option cost?  How long will the tenant have to exercise that option?
    

20. 20.Will the rent escalate over time?  That escalation should be agreed in advance over the term of the lease.
    

21. 21.What portion of the common area maintenance (CAM) expense will be paid by this tenant?  Is there a cost escalation provision for CAM?
    

22. 22.Holdover Provision - the lease should describe what rent the tenant will be obligated to pay int he event it remains in the premises after the end of the lease term.
    

23. 23.In the event of a tenant default, what will the landlord’s remedies be?
    

24. 24.If the premises are destroyed by fire, condemnation or other events, what will the parties’ responsibilities be?  Will the tenant be required to purchase insurance to protect it against an interruption of its business?
    

This checklist is not intended as a substitute for competent legal advice.  it is by no means an exhaustive list of the issues that may arise in a commercial lease context.  If you have questions, please contact our office at (408) 559-5155 or email us.

Disclaimer: The foregoing is not intended as legal advice. The facts and circumstances of any case requires the review of an attorney familiar with real estate and/or construction law. Before taking any action, please consult with your counsel.