How To Get a Good Lease Step 6/10

The landlord delivers the lease agreement, and your excitement quickly fades as you see the size and girth of the document. Before we start on this little gem — just a reminder, I’m still not an attorney.

Step 6. Lease Negotiation

A lease agreement is the contract between landlord and tenant. It’s like a prenuptial agreement as it maps out every crappy thing that could happen and how each event will be handled. It is written FOR the landlord and can be an alarming and disheartening to read. And there’s 3 reasons for this:

1. Property laws puts all the legal liability on the landlord. So, most savvy landlords try to pass this burden on to the commercial tenant.
2. Landlords are envisioned like a cross between slumlords and Ebenezer Scrooge with every ounce of public sympathy to support the tenant.
3. Should something go wrong, and someone’s harmed, the plaintiff’s attorney will usually choose the deepest pockets to sue. See #2.

At this point, the leverage has tilted in favor of the landlord.

That doesn’t mean that you should accept the lease As Is. But you’d be wise to pick your battles and avoid dwelling over the unfairness.

How you approach the document and what you prioritize will depend on your business’ operations and goals.

For instance, I recently advised a chiropractor with an existing lease, who was starting to consider retirement. What should she do?

• Renew in place (too much unexpected capital associated with moving)
• Limit her liability. She had an S-Corp & unwittingly signed personally
• Ensure proper assignment rights to allow the eventual transfer of the lease without much restriction from the landlord.

Given the complexity and variability of leases, I can’t make any specific recommendations but here are a few tricks I find helpful. Check that:

• All LOI points & exhibits are included correctly into the Lease Agreement
• The lease is with your legal entity, and you are only signing as it’s agent
• The Insurance section is sent to your insurance broker for comment
• The Permit timing section is sent your architect for comment
• The Work Letter section(s) is sent your contractor for comment

Then ask that your real estate attorney to:

• create a critical issues list from the initial lease draft for your review then ask them to explain anything that doesn’t make sense to you
• redline the lease with a scalpel rather than a machete
• aim for commercially reasonable, not aggressive. It’ll be better received.

You have the most negotiating leverage in the Prep Work and in the LOI. But if you’re reasonable in your asks, most landlords will acquiesce.

See you tomorrow for Day 9 😀

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