First a word of warning…commercial real estate leases can be MASSIVE!  I have negotiated leases that are ten pages and I’ve negotiated leases that are 110 pages.   Don’t let the size of the lease intimidate you.  You should have a commercial brokers and an attorney that will get through the finicky details that you may have never heard of; subordination, estoppel, force majeure and the like. 

Over the next few weeks we will delve into the world of commercial leases, everything from Assignment to Warranties.

First stop:  Term

Definition:  The period of time which something is in effect. Typically a condition specified in an agreement. 

Every real estate lease must have defined beginning and ending date to be legally binding.  It sounds quite simple.  A lease starts January 1, 2010 and ends December 31, 2010. 

The term can last any period of time from one week to 100 years (this is usually reserved for ground leases).  Typically they are for set periods but these times can be flexible depending on a number of factors. 

Some of these factors can be:

  • Construction timing
  • Governmental approvals
  • Tenant delays, etc…

This is where things can get complicated.  Both the tenant and landlord will negotiate the lease with an eye to protecting their interest in the lease.  

Office space leases

For example, if a lease term, and rent, are set to being June 1st and the landlord is doing construction for an office tenant in preparation for their occupancy, the tenant will often put in language stating that the term (and rent) will not being until construction is complete.  That way the tenant is not stuck paying rent if the landlord has not completed construction. 

In retail leases, where the tenant might be performing their own construction, the term may consist of language stating that the term commences on June 1st or the first day the tenant opens for business, whichever comes first.  This protects the landlord from the tenant opening early without paying rent or the tenant never completing construction and hence not being forced into ever beginning the lease term.  

A properly determined construction schedule for both the tenant and landlord can alleviate many of these concerns.

Nine times out of ten the term is a simple starting point and ending point but it is important to have a commercial broker and attorney on your side when negotiating these details.  The reason many of these lease points are so hotly contested in because landlords, tenants and attorneys have been burned in the past by unscrupulous parties who prosper by taking advantage of the ignorant or inexperienced.   

As always, if you have any questions feel free to contact me at 865-584-3967 or jcazana@ciprop.com

Justin Cazana, CCIM

Commercial & Investment Properties