For most businesses, the top expenditure is the cost of the space they are leasing. So, as a tenant, you always want to know that you are getting the best price and the best deal terms. Generally, landlords offer tenants what they call a “standard” lease. “Standard” does not mean the lease is right or fair to the tenant, because each lease is completely unique unto itself.

Businesses leasing commercial real estate space often lose sight of the fact that the landlord’s “standard form lease” represents the landlord’s “wish list” and if not appropriately modified, may not serve the best interest of the tenant.

The potential negative effects that a poorly negotiated lease can have on a company’s bottom line can be devastating. A commercial real estate advisor who specializes in tenant representation will do his or her job to find you the best location, negotiate the best rates and concessions for you, and help to structure your lease agreement. After your broker has favorably negotiated your lease terms, you will need to take one more step before signing the lease. Your commercial tenant broker should always suggest that you consult with a real estate attorney to review the lease document in order to best protect your interests and avoid costly errors.

Brokers are experts in their field of real estate, market statistics, rates and availability. But brokers cannot advise their clients in legal matters since they are not attorneys. Rather, brokers should suggest that their client seek guidance from an attorney who specializes in real estate matters.

‘Another Level Of Protection’

 Attorneys play a very important role in assisting brokers and tenants in their real estate deals. Much like using a commercial real estate broker that exclusively represents tenants, a real estate attorney works for you. He or she is trained and licensed to disclose to you any legal defects or exceptions in your lease and to suggest modifications.

Marlene Spritzer, principal of Cresa Corporate Real Estate Advisors in Raleigh, N.C., recommends that all her clients have an attorney review their lease agreements before signing them.

“Too often, tenants sign leases that are not ideal and can often result in problems down the road,” she said. “As a commercial real estate broker who exclusively represents tenants, as well as being an attorney, I know that utilizing an attorney for each transaction can make a world of difference in the outcome of my client’s transaction. When I represent a tenant I offer them transactional advice on their lease negotiations. Having my clients work with a real estate attorney to review the lease draft provides them with another level of protection.”

 Not all commercial real estate brokers will suggest that a client engage an attorney. Some brokers feel that inserting an attorney into the transaction can muddy the water and make the process longer and more drawn out, holding up the lease agreement and execution. However, the brokers who really care about their clients and protecting their interests suggest their clients go the extra mile to seek the advice of a real estate attorney.

Critical Lease Terms

Some of the critical lease terms for your broker and attorney to consider include:

• The length of lease; when it begins and whether there are renewal options.
• Rent and escalations, and how they will be computed.
• Whether the rent you pay includes insurance, property taxes, and maintenance costs; or whether you will be charged for these items separately.
• If there will be a security deposit and conditions for its return.
• The square footage of the space you are renting (including common areas such as hallways, rest rooms, and elevators) and how the landlord measures the usable and rentable space.
• Whether there will be improvements, modifications (called build outs when new space is being finished to your specifications), or fixtures added to the space; who will pay for them, and who will own them after the lease ends and in what condition the space must be in when you leave.
• Specifications for signs, including where you may put them.
• Who will maintain and repair the premises, including the heating and air conditioning systems.
• Whether the lease may be assigned or subleased to another tenant.
• Whether there is an option to renew the lease or expand the space you are renting.
• If and how the lease may be terminated, including notice requirements, and whether there are penalties for early termination.
• Whether disputes must be mediated or arbitrated as an alternative to court.

Using both a real estate attorney and a commercial real estate broker who specializes in tenant representation will save you time, money and headaches on your real estate transactions in the long run. 

Marnie Settle is the marketing and business development manager for Cresa Raleigh, N.C., www.cresa.com/raleigh.