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Things to Consider for Commercial Real Estate Leases – for Landlords

Lynnette Ariathurai, Bay Area Business Attorney, Fremont, Hayward, CA

Owning commercial property in California can be lucrative, especially when that property is located in an area that is highly trafficked and desirable for businesses in the region. At the same time, it is important to recognize that the value of a commercial property investment depends on having a strong, well-drafted lease agreement.

The lease is the basis of your relationship with a commercial tenant. It is crucial that a lease effectively protects your interests in all possible scenarios. Here, our Fremont commercial real estate lawyer highlights six important issues that landlords should consider when negotiating and drafting a commercial lease in California.

Commercial Rent (Base Rate, Utilities, Percentage Leases)

It is no secret that the most important thing for landlords is collecting rent. Rental payments are the lifeblood of commercial real estate investment. A well-drafted commercial lease will help you ensure that you are in the best position to get full and fair market value rent for your property and that you can actually collect the rent.

A commercial lease should clarify exactly who is responsible for all costs—it should specify the amount of base rate, the date it is due, and payment of utilities. In some cases, commercial rent is based, in part, on business revenue. Often referred to as a “percentage lease”, it may be a good option for some California landlords.

Duration of the Lease (Early Termination/Renewal Rights)

A commercial lease should always have a well-defined duration. Both parties need to know exactly how long their current obligations will last. Beyond that, commercial landlords should also consider including provisions that clarify what will happen at the end of the lease. Among other things, you may want to consider:

Automatic renewal rights (first refusal rights);
The ability to extend the lease; and
Early termination options.

At the end of the current commercial lease term, the landlord-tenant relationship will either be extended or it will terminate. It is useful to operate under an initial commercial lease that helps facilitate a smooth transition, whatever the parties decide to do.

Alterations, Improvements, and Maintenance During the Tenancy

Commercial leases should have clear information about the commercial tenant’s ability to make any alterations to the premises during the terms of the lease, as well as information about whether you or the commercial tenant will be responsible for necessary improvements or maintenance during the tenancy.

Insurance and Indemnity

A commercial lease should always prepare for the possibility of unexpected loss—whether because of property damages or a lawsuit from a third party. This starts with insurance. While a commercial landlord will typically maintain their own insurance policy, it is important to consider whether a commercial tenant will be required to have a liability policy or another type of insurance policy as well. Additionally, commercial landlords may also want to consider some type of indemnity clause. As defined by the Cornell Legal Information Institute, an indemnification clause is a contract provision that shifts a liability risk from one party to another.

Collection of Overdue Rent and Evictions for Non-Payment

Unfortunately, not all commercial tenants live up to their responsibilities. You may run into a problem collecting rent. If so, you have the right to take immediate action against the business, potentially including initiating eviction proceedings. Your commercial lease is the basis of your ability to collect rent and evict a tenant for non-payment. A properly drafted commercial lease will ensure that you are in the best position to collect, even if a commercial tenant files for bankruptcy.

Termination of the Lease for Other Types of Contract Breaches

As a tenant, the primary obligation a business owes to its commercial landlord is a timely rental payment. Of course, that is not typically the only obligation. Landlords also need a commercial tenant who will treat their property well. In a commercial lease, you should strongly consider including a clear definition of what constitutes a breach of contract sufficient to justify termination of the lease and removal of the tenant. For instance, a commercial tenant may be removed for creating a nuisance or engaging in unlawful activity on the property.

Contact Our California Commercial Real Estate Attorney Today

Are you planning to rent commercial property to a new business tenant? You should seek advice about your commercial real estate lease from an experienced Fremont business law attorney. Attorney Lynnette Ariathurai is committed to serving commercial real estate landlords in California and can discuss the issues you should be considering in your commercial lease. Contact us to learn more about the services we provide. We serve clients in Fremont, Hayward, Milpitas, Union City, Newark, and throughout the East Bay.

business law attorney, commercial property leases, commercial real estate leases, contract agreements, contract attorney

Top 5 Business Contracts Mistakes

Contracts and contract reviews are part of everyday life for Bay Area businesses. However, many business owners and managers make mistakes when creating, considering or approving a business contract that can have catastrophic ramifications on your business. Here are five common mistakes in business contracts and how to avoid them.

1. Using Internet or Ready-Made Contract Forms

There are several reasons a ready-made contract form will not work for you and your business. They include:

Contracts must be relevant in your locality. A form contract from Michigan may not contain clauses that are standard in California contracts.
State laws are varied. The law could be different from where and when the contract was originally drafted. You must review borrowed language from such a contract for amendments to relevant state law, including additions and subtractions to the various codes at play in the agreement.
Contracts are drafted from the perspective of one side over the other; is the form contract you are reviewing beneficial or detrimental to your deal?
Contracts for one type of entity may not be relevant for other types of entities

2. Seeking Legal Advice After Signing the Contract

Even if your deal is relying on a generic contract template you pulled from the Internet, have a business contract lawyer review it before you sign it to make sure it protects you and includes all of the terms it should and does not put your business at risk.

3. Forgetting the Recitals

A recital, in legal terms, is a preamble to the contract. It provides a general idea to the reader about who the parties are, what the contract is about, and why the parties are signing the contract. Often overlooked during the contract drafting and negotiation phases, when a dispute arises over contractual interpretation, the court or arbitrator may use the recitals as an aid to interpretation of the contract. Focus on the operative provisions of the commercial contract, but do not forget to set the scene and provide the reader of the contract with background information.

4. Not Knowing Which Clauses to Include and Which to Leave Out

Not understanding boilerplate (standard contract clauses) can come back to bite you when a dispute arises. A business lawyer provides advice as to which clauses should be included in your contract and which clauses should not.

For example, an assignment clause should be included in a commercial contract. An assignment clause will permit you to assign the contract to another entity (someone who buys your business). Without an assignment clause, the contract may not be sold or transferred should you sell your business after the commercial contract is signed.

Another issue that can be addressed by a business attorney is whether a contract should include an arbitration clause. The arbitration clause must also contain information about the impact of any decision by an arbitrator. With no or weak arbitration clause included, the statement may be advisory and not enforceable.

5. Forgetting That Words Have Meaning

Form contracts are notorious for containing vague and ambiguous language. Using words without clear definitions is dangerous to contracting parties because it places the interpretation of such language in the hands of someone else. Ambiguities are normally construed against the drafter of the contract. It is possible then that ambiguous language will have at least three interpretations – yours, the other party’s, and the court or arbitrator’s. A court or arbitrator may be bound to interpret such a clause using the custom and practice of your locality, which can be different from the custom and practice of your industry and even your intent at contract formation.

Ask Us to Review Your Business Contract

Make sure that your commercial contract is in writing and reviewed by an experienced and knowledgeable business contract attorney who can provide you with actionable advice and counsel to protect your business.

Avoid these and other common business contracts mistakes. Contact us now about reviewing your commercial contract before you sign it. We represent and counsel clients in Fremont, CA and the surrounding communities of Newark, Hayward, East Bay, Milpitas, Union City, San Leandro, Gilroy, San Jose, and Santa Clara, CA.

arbitration clauses, business contracts, contract attorney, contract mistakes

Resolving Contract Dispute Issues in California

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Contract Disputes on Wednesday, February 10, 2016.

When company owners or their representatives sign agreements with other parties, they are binding themselves to certain responsibilities and obligations contained therein. Contracts are par for the course in business and are typically customizable to suit the needs and goals of those who add their signatures to the agreements. When a contract dispute arises, however, a California company owner may experience immediate adverse effects in a variety of areas that can threaten the very existence of his or her business.

Knowing where to go for legal help to resolve contract issues may be key to obtaining a swift and fair resolution to the problem. The Law Office of Lynnette Ariathurai, A Professional Corporation, serves clients in Fremont and surrounding regions. Our seasoned attorneys have dedicated themselves to helping company owners protect their legal interests and achieve both their short-term and long-term business goals.

It is important that all signatories possess a clear understanding of the legal terms and wording in a contract in order to make certain that everyone involved is aware of their individual obligations. Whether the issues you now face pertain to an independent contractor agreement, technology licenses or nondisclosure issues, we are prepared to help you address the matter. If basic negotiation and mediation is not enough to resolve the situation, we are ready to aggressively litigate the issue on your behalf.

The Law Office of Lynnette Ariathurai, A Professional Corporation, brings keen insight and decades of experience to the table that may increase your chances of obtaining a favorable outcome in court. We can anticipate possible issues that may arise during litigation of your contract dispute and offer guidance as to how address those issues in a way that helps you achieve your business goals. Our California practice is focused on helping you overcome your legal challenges and accomplish your business objectives in a timely manner at minimal cost.

contract attorney, Contract Disputes