How to Review a Commercial Lease

Commercial leases are complicated documents.

Commercial leases are complicated legal documents that contain information ranging from as the initial rate to more complicated calculations such as how the rate will increase over time and discussions of which party is responsible for which expenses. To get the most out of a commercial lease, it is in your interest to retain an experienced real estate attorney who can help you to understand the impact of specific language.

Instructions

1. Skim through the lease to identify where the key elements, such as the lease rate, are located so that you can later review them in more detail. Look for a list of definitions such as the property address, the parties to the lease and the rate. If your lease is structured this way, keep the definitions handy.

2. Prepare a lease abstract. This is a document that summarizes the key elements of the lease. Sample lease abstracts, or blank templates, are readily available online, or you can get one from your commercial real estate agent. You will be filling in the sheet as you review the lease.

3. Find the lease's initial rate and the description of how it will increase. While you are doing this, look at the length of the lease's initial term, as well as any options. Look carefully for options to cancel. While a 10 year lease with a five year option to renew is still a 10 year commitment, a 10 year lease with an option to cancel after five years is really just a five year lease. Write your findings down on your abstract.

4. Determine who pays for the building's operating expenses. In a full service gross lease, the landlord will be responsible for everything. In a triple net lease, the tenant should be responsible for everything, although many "triple net" leases leave the landlord responsible for capital expenditures at the property. List the the lease's terms on the abstract.

5. Determine which concessions are being given to induce you to sign the lease. Concessions include periods of free rent, which may also include the ability to not pay the cost of operating the building, called CAM, during the free rent period. Another concession is for the landlord to contribute to the cost for tenant improvements, which are the customizations that the tenant requires to use the space. Another landlord expenditure is leasing commissions. Note all of these concessions on your abstract.

6. Review the abstract. If the main key elements of the lease are not acceptable to you, you will need to renegotiate the document with the landlord to reach agreement.

7. Bring the abstract and the lease to your real estate attorney for review. Let the attorney know that the abstract represents your understanding of the terms of the lease and that they are acceptable to you. Your attorney will then review the entire document and make suggestions on how it can be improved. Your attorney should also let you know if your abstract is incorrect.