Before signing a commercial lease agreement, you should always have an attorney review it, as you are likely to have to live with it for years to come. Here at Morris Law Center, we love to review contracts, and then assist with revisions if needed. The excerpt below if from a memo we wrote to one of our clients upon reviewing their lease agreement. As you will see, Landlord has been abbreviated to LL.
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Executive Summary: The harshness of Article 15, coupled with there not being any way for the LL to be in default, are my primary concern. I would insist on revisions there. Otherwise, please review the memo to determine what is of concern to you.
Red Flags
Article 15: is extremely harsh with very short time periods for a tenant default. Furthermore, there is not a section defining LL default. So the LL basically can not default. Not acceptable.
Potential Concerns
Article 1.1.B and E: this was also a concern of XXXXX. In the LOI it sounds like you [tenant] are going to XXXXX. However, in the lease the LL has complete discretion. It implies that the LL will work with you on XXXXX, but does not require it. This should probably be cleaned up depending on if you want XXXXX.
Article 1.K
XXXXX noted concern regarding the “LL’s reasonable discretion with respect to noise levels.” If you are concerned about this we can press it with the LL. However, considering the term “reasonable” is practically meaningless, I am not particularly concerned if you want to let it go and focus your negotiation capital on more important revisions.
The item that brings me a little bit more concern is that you are responsible for all licensing. When I am negotiating a lease on behalf of a client that requires a privileged license, we normally negotiate a clause that allows an out if your license is denied for some reason. For example, maybe the city issues a moratorium on liquor for 12 months, or maybe one of your partners comes up with a felony and your entity can’t be licensed. This clause could have a notice or even a buyout like 60 or 90 days rent.
Article 6.1: you are required to open within 180 days of commencement, which does not account for potential delay or extension.
Article 10: the lease does not appear to specify your % responsibility for the CAMs. Most leases have the total sq ft and well as your sq ft, which allows that calculation. You should only pay our % of the CAMs. They have to charge only your share, but we could also get that explicitly added to the agreement.
Article 11.1.B: make sure you are ok with the levels of insurance required. $1M/$2M for liability and the same for liquor.
Article 14.1.A: the lease is not transferable without permission, at the landlord’s sole discretion. It would be preferable to revise that permission will not be reasonably withheld. Also, you can not move to another entity of your own without permission.
Exhibit C
Are 1 – 7 sufficient?
Do we need to pick location of stubs?
Approval over the roof: the contractor noted concerns about insulation.
The contractor also noted concerns about the timeline for work in the case that LL causes a work stoppage.
Exhibit D(4): you have to show proof of having $500k liquid within 30 days.
Exhibit D(5): You should not be locked into [a specific contractor]. This should be cleaned up.
Exhibit E: per the guaranty, you are personally on the hook for the rent plus attorney’s fees if they sue.
Items of Note
The LLs’ LLCs XXXXX and XXXXX are in good standing.
Your LLC is active and in good standing. However, there are two items of concern:
You should have a litigation law firm, like the “award winning” Morris Law Center, as your registered agent. This is where lawsuits go, so you want it in the hands of an attorney. It also conveys professionalism aka intimidation to anyone who might sue you.
I am not familiar with your business structure, but I have some indication that you already have a location in XXXXX. Assuming that is correct, I must insist that each location be in a different LLC to allow for insulation from liability. That may already be the case, but if not we need a new entity.
I would love to work on your business license if that would be helpful. This is my favorite area of practice… helping people get a business open.
Article 2: you need to exercise your right to extend at least 180 days prior to expiration of the term, via certified mail.
Article 19.16: is a mutual attorney fee provision. Prevailing party gets their fees paid by the other party.
I used to deal with Mr. XXXXX [LL] regularly back in the day when I was XXXXX. He was a friend of a friend. I never had an issue with him, and have not heard anything bad about him.
Exhibit D(6): all the improvements you pour into the property become part of the building.
Exhibit F: look it over to make sure you don’t have any concerns.
Give me a call any time, including over the weekend, to discuss further.
Best Regards,
Brian
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Here at Morris Law Center we love to help you maintain control of, and protect, your business. Contact us to schedule a complimentary consultation before anything is set in stone.