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Updated: March 21, 2022 Know How

Key tips for an effective commercial lease

By Spencer Holland

Create a clear process for getting off the ground. The lease must create a roadmap for the landlord delivering possession of the premises in an agreed-upon condition and for the tenant beginning to pay rent. If the tenant’s use of the premises requires initial permitting or improvements, the lease needs to address what happens if things don’t go according to plan.

Spencer Holland is an associate in Worcester law firm Mirick O'Connell's land use and environmental law group and the public and municipal law group. The focus of Holland’s practice is representing clients buying, selling, financing, and leasing commercial real estate.

Consider the end at the beginning. Issues relating to the state of the premises at the end of the term represent a common source of disagreements. The lease should make it clear what alterations, installations, and improvements the tenant must remove.

Figure out who fixes it. From minor items like lightbulb replacements to major expenses like a new roof, the lease should leave no ambiguity about who must perform the necessary work and how the parties must allocate the costs involved.

Tenants benefit from flexibility. While tenants routinely negotiate for options to extend the lease term, they often neglect other possible rights that could improve their ability to adapt to changing circumstances, such as options to expand or contract the premises, options to terminate the lease early, or rights of first refusal to purchase the property – just to name a few.

Landlord remedies are only as good as the ability to collect. Landlords need assurance that, in the event of a tenant default, they will be able to recover damages. They should carefully assess the creditworthiness of a prospective tenant and determine what additional backstops, such as security deposits, letters of credit, and personal or corporate guarantees, might be necessary.

Don’t overlook matters of administration. Leases usually include many critical timeframes for delivering and responding to notices. Each party should ensure the lease contains realistic requirements so that neither inadvertently forfeits a crucial right or breaches the lease.

Consider your surroundings. Landlords may benefit from the right to relocate tenants within the property or from requiring tenants to operate continuously throughout the term. Tenants may want to ensure a competitor doesn’t open next door or an anchor tenant remains at the property.

Protect your exit. For landlords, the ability to sell the property is almost always crucial. For tenants, the ability to assign the lease as part of a merger or acquisition is often crucial. In either case, parties should carefully consider the provisions that impact the ability to pull off a potential deal.

Don’t ignore those final articles. It’s easy to run out of steam reading a lease, but even those provisions tucked away at the end of the document hold real-world importance. Consider, for instance, the impact force majeure articles have had during the COVID-19 pandemic.

Clarity is kindness. A landlord and tenant might feel like they’re on the same page when they sign a lease, but over time, questions may arise and having a clear answer in the contract helps avoid disputes.

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