What To Know About Commercial Leases In New York
If you are a New York business owner considering a lease for commercial space, there are several important considerations to know about if you have not leased commercial property before. Commercial leases in New York are subject to rules and conditions much different from those in landlord-tenant contracts for residential properties.
Because commercial tenants are presumed to be more sophisticated than residential renters, the law offers them fewer protections if things go awry during the course of a lease. It is always best for a commercial tenant to carefully review all aspects of a lease agreement and consult with a New York real estate attorney to make sure they know exactly what they are getting into.
A commercial lease will, at minimum, typically include the following:
- Identification of parties to the lease;
- Identification of the property, or portion thereof, to be leased (including the property’s legal description);
- The lease term (start and end dates)
- The rental amount
- Provisions for use and occupation of the area, including use of common areas and utilities;
- Language concerning who is to carry insurance for the commercial space.
Parties to both sides of a commercial lease agreement need to be familiar with these terms and conditions, and others that can impact both the tenant and property owner.
Some key commercial lease considerations include:
- Rental Amount. This may seem straightforward and simple at first, but commercial rents don’t always follow a fixed-fee number for monthly rent (usually referred to as a “gross lease”). Commercial rent may be calculated using one fixed amount (the “base” rent), while also incorporating a percentage of the property tax, insurance costs, and building maintenance costs. Rental agreements that have the tenant paying a share toward the building’s operational costs are more favorable to landlords than a gross lease set at a fixed amount. Other, more unique, types of commercial leases may calculate rent based on a percentage of the tenant’s business profits. (This may help newer startup businesses, but later favor landlords as business sales increase.)
- Improvements, Repairs, Relocation and Expansion. Both sides need to know who is responsible for any necessary repairs during the lease, as well as a tenant’s options for making improvements to their building space. Residential leases typically make repairs the responsibility of the building owner. In a commercial lease, the space is often rented “as is” – with the tenant required to perform certain tasks. A commercial tenant will want to know what exactly they are getting into before signing on the dotted line.
Many commercial leases leave building owners with the right to relocate their tenants to other parts of the building as needed. (For example, if they sign a new tenant that needs an entire floor of space, displacing other tenants.) This can be difficult for small business owners, however, and sometimes comes as an unwelcome surprise if they did not read their lease agreement carefully.
Similarly, if a commercial tenant hopes to eventually expand and add on space, they want to make sure to reserve that right from the beginning of their lease. If not, they might run into problems expanding their operations at a future date.
- Options for Renewal and Breach of Contract Issues. If a commercial tenant is signing a 5-year lease, for example, they might not always be thinking about what happens 5 years from now. But they want to make sure they have a right to renew their lease if business is going well and they are happy with the location. This language should be in the contract, or a business owner may find themselves with a problem later on.
Many commercial leases will also contain language about what happens when things go wrong. If either the landlord or tenant breaches the contract in some way, what are their options? Does the lease refer both parties to an arbitrator or mediator? Does it require a tenant to pay the landlord’s attorney’s fees if they breach the contract and litigate? On the day a lease is signed, neither party is thinking about these issues, but their attorneys should.
Our Bronx and New Rochelle Real Estate Attorneys Are Here to Help Clients Achieve Their Business Goals Through Effective Commercial Lease Agreements
Our attorneys at Cavallo & Cavallo have proven experience in the New York real estate market and can help guide both landlords and tenants through the commercial lease process. It is critical at these early stages to set terms you and your business are comfortable with and protect yourselves for the future. If you have any questions, please don’t hesitate to call our Bronx & Westchester real estate lawyers today.