5 Mistakes to Avoid When Leasing a Property
Leases can be complicated agreements to negotiate
Leases can be complicated agreements to negotiate. While each deal is different, there are some situations that arise repeatedly in my practice. Below is a list of common mistakes that are ignored or overlooked in preparing a lease, and how to avoid them.
We all want to believe that everybody will always be reasonable. But while I wish that was the case, people forget, they change their minds and sometimes deals die. Additionally, it is usually easier to negotiate advantageous terms before a problem arises. Yes, it takes time and the need for critical thought, but the effort benefits both parties. Oral agreements to lease lasting longer than one year are void under Colorado statute 38-10-108.
Know when payment starts
Some leases commence on a certain date, while other leases commence on the occurrence of some future event. Sometimes one portion of rent is due at the beginning and another portion of rent starts at a later date. Anticipate different scenarios that may impact timing to avoid putting yourself in a position where you are paying money but not getting anything in return.
Pay attention to insurance
There are tradeoffs between delegating responsibility for maintaining insurance and controlling insurance proceeds in the event of accident. While it might be easier to have the other party handle insurance coverage, the parties may have different interests when it comes to the timing and quality of necessary repairs.
Getting out mid-term
Prudent businesspeople avoid boxing themselves into a corner. It is common for a lease to include language that facilitates a landlord’s ability to finance or market a property. The other side of the lease is more nuanced. Landlords and tenants should always carefully negotiate the assignment and subletting provision to control the process for finding a substitute occupant.
Understand the expiration.
All leases come to an end at some time. A landlord and tenant may have different ideas of what remains and what must be removed from the premises upon expiration. A landlord may want to keep equipment, fixtures and improvements that will make the premises more marketable to future occupants and require removal by the tenant of any equipment, fixtures and improvements that are costly to remove or do not provide value to future occupants. Likewise, tenants want to retain the right to remove equipment, fixtures and improvements that are useable at other locations or retain value, and otherwise, abandon such items that are expensive to remove and repair. Clear language in the lease allows the parties prepare in advance.
The consequences for making these five mistakes in commercial leasing can be expensive. Hiring a commercial real estate attorney to negotiate favorable contract terms on your behalf allows you to avoid these issues and many more. When it comes to commercial leasing, hire experience.
Robert Fischer is an attorney at the Fischer Law Office. With two decades of experience, Fischer is one of Colorado's leading commercial real estate attorneys. He provides a full range of transactional legal services for professionals looking to buy, sell or lease commercial real estate.