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Negotiating a commercial lease agreement

On Behalf of | Sep 22, 2021 | Real Estate Law

Whether New York City business owners are beginning a new enterprise or entering a new phase in development, they will usually choose to rent property, as it is less costly and requires less capital than a real estate purchase. With plenty of available lease space in New York in the current market, now is a good time to negotiate favorable terms.

When entering into a commercial lease agreement, however, it is important that they understand the terms and conditions of the agreement, how much it will cost and the length of the lease to assess how suitable the arrangement will be to the needs of the business. A detailed review of all the contractual aspects of the agreement is essential before moving forward.

Risk assessment

Commercial lease agreements differ from residential leases in that they are usually highly negotiable, as tenant needs are variable. They also do not benefit from state consumer protection or landlord-tenant laws, and a commercial lease will often go for a much longer period than a residential lease.

In New York, a typical commercial lease is three to five years. For these and other reasons, business owners must have a clear understanding of liability issues as well as the terms of the lease before entering negotiations.

Negotiating the lease

A commercial lease agreement should cover several important terms and conditions that also address the unique needs of the business:

  • The terms should include clear language of the rental amounts and increases, calculated by square footage, as well as the amount of the security deposit and its return. Negotiable terms may include the percentage of annual increase with caps, property taxes, insurance, utilities, or repairs.
  • The provisions for modifications to the space and who will make them should be clear, as well as whether or not the responsible party must return the space to its original condition.
  • As the lease agreement will contain the conditions for what activity may occur on the premises, called an exclusivity clause, the business owner may request a broad usage clause while negotiating a separate exclusivity clause that will bar the landlord from renting out space to a competitor. In addition, they may wish to negotiate the right to sublet the space.
  • Along with outlining compliance with the Americans with Disabilities Act (ADA) by providing handicapped accessibility, the business owner may wish to clarify which party will have responsibilities and obligations for making the necessary alterations.

These and other considerations are crucial when entering into negotiations for a satisfactory commercial lease agreement.