Negotiating the terms and conditions in a commercial lease

Our commercial lawyers have assisted many business owners and tenants with negotiating the terms of a commercial lease. There are many areas to consider during the negotiation process, including the following: 

1. As a tenant, inspect the premises yourself to make sure it is an accurate representation of what is in the lease. For example, is the square footage that is included in the lease actually all usable space or does it include “dead space”? Measure the space yourself to ensure that you are not paying for square footage that you are not using. If the measurements are not consistent, you may be able to negotiate a reduction in the rental costs.
   
   
2. Ensuring that the rent is reflective of the market rate – often landlords assume the rent that is paid by the existing tenant is a benchmark for future negotiations and rent reviews. However, that may not be a true reflection of the current market rate. Market rent can be ascertained through comparable properties.
   
   
3. Avoid hidden and ambiguous terms in a commercial lease, which may be detrimental to any of the parties to the lease. If a term of the lease is ambiguous, it may result in disputes and litigation between parties. It is recommended to have very express and clear terms in a commercial lease to avoid instances of unnecessary and avoidable disputes and litigation.
   
   
4. Negotiating flexible lease terms – this is particularly crucial in the current landscape, given the disruption the ongoing pandemic has caused to many businesses. Running a business during the pandemic has left landlords and tenants feeling more anxious and uncertain than ever before.
   
   

   The future of leases will see more and more apparent terms that allow the parties express options, “ways-out” and flexibilities of leases (contracts), which can include force majeure provisions and frustration. It is important to ensure you understand the implications of such clauses and work closely with a commercial lawyer to negotiate these terms to ensure you are not disadvantaged as a result.

5. Inclusion of any penalty fees or unwarranted payment terms in the lease that are more favourable to one party should be dealt with at the outset during the negotiation phase. After the lease has been entered into, any non-compliance with a lease term can prove costly for the breaching party. Accordingly, it is important to ensure that the lease establishes clear dispute resolution processes to facilitate disagreements between the parties.