Most commercial tenants come to a lawyer after the hard part is done. They found the space, negotiated the rent, and signed a term sheet or letter of intent. Then the landlord sends a 40-page lease, and the question becomes: what in here actually matters?
Below are the questions I think every tenant should be able to answer before signing, and why each one matters.
1. Does the lease match what I agreed to?
The term sheet is not the deal. The lease is. Start by comparing the two line by line: rent, rent commencement date, free rent, improvement allowance, renewal options, and any work the landlord agreed to do.
Also think about anything you were told that isn't written down. The landlord said they'd fix the parking lot, or the broker said the unit next door would never go to a competitor. Nearly every commercial lease has an integration clause saying the written lease is the entire agreement. If a promise isn't in the lease, assume it doesn't exist.
2. What will I actually pay each month, and can it go up without limit?
Base rent is only part of the cost. In a triple net or modified gross lease, the tenant also pays a share of the landlord's operating expenses, usually called CAM (common area maintenance), plus a share of real estate taxes and building insurance. These are billed as monthly estimates and trued up periodically. A tenant who budgeted only for base rent can get a reconciliation bill for thousands of dollars.
Before signing, ask for the landlord's current estimates and the last year or two of reconciliations. Then look at how the lease defines operating expenses. Common problems:
• Capital costs passed through.
• No cap.
• Management fees
• Missing exclusions.
Real estate taxes deserve their own look. If the building sells during your lease, a reassessment can raise the tax bill significantly, and your share goes up with it.
3. Who replaces the HVAC, the roof, and other major systems?
Residential tenants in Massachusetts have the warranty of habitability behind them. Commercial tenants don't. Who repairs what comes down to what the lease says, and many landlord forms put nearly everything on the tenant.
The common trap is the difference between repair and replacement. A lease might say the tenant maintains the HVAC. That sounds reasonable until the unit dies in year three and the replacement costs $15,000. Does "maintain" include replacing it? Read the lease closely, and if it's unclear, fix it now.
Before signing, ask:
• Has anyone inspected the roof, HVAC, electrical, and plumbing?
• Will the landlord warrant that those systems work at delivery, and for how long?
• Who pays for conditions that existed before you moved in, including leaks, mold, and code violations?
• If a major system needs replacing, who pays, and is the cost spread over its useful life?
• Who is responsible for ADA compliance in the space as it exists today?
4. Can I legally operate my business here?
A signed lease doesn't mean the town will let you open. Confirm that zoning allows your use, whether a new certificate of occupancy is needed, and what licenses you need. That could be a liquor license, Cannabis Control Commission approval, Board of Health permits, or sign permits.
If approvals aren't in hand, the lease should say rent doesn't start until they're issued, and that you can walk away if they're denied or delayed past a set date. Otherwise you can end up paying rent on a space you can't use.
While you're at it, check the use clause. It should cover what you do now and what you might do later, because a narrow use clause can also block a future sale of the business. If a competitor next door would hurt you, ask for an exclusive.
5. What am I personally on the hook for?
If the tenant is a new LLC, the landlord will almost always want a personal guaranty. That means the LLC doesn't protect you. If the business closes, the landlord can come after you personally for the remaining rent.
The question to ask yourself: if the business failed in year two of a ten-year lease, what would I owe? Under a full guaranty, the answer can be the rest of the term. There are better options to negotiate for:
• A capped guaranty, limited to a set number of months of rent.
• A "good guy" guaranty, which ends if you give notice, pay rent through the move-out date, and hand back the keys.
• A burn-off, where the guaranty ends after a period of on-time payments.
Also check whether the guaranty survives if you sell the business and the buyer takes over the lease. Many do unless you negotiate otherwise.
6. Can I sell my business or get out if things go wrong?
Most tenants don't think about leaving when they sign. They should. A lease often lasts longer than the owner's plans for the business.
Look at the assignment clause. Many landlord forms treat any change in ownership of the tenant as an assignment that needs landlord consent. That covers bringing in a partner, not just a full sale. Some give the landlord a recapture right, meaning if you ask to assign, the landlord can terminate the lease and take the space back, along with the location your buyer was paying for.
Things to push for: the right to assign on a sale of the business with consent not unreasonably withheld, a deadline for the landlord to respond, and a release from liability once a qualified buyer takes over.
If the business may not work out, consider an early termination right, even with a fee. That's cheaper than being stuck for the full term.
7. What happens if something goes wrong: late rent, a fire, a foreclosure?
Late rent. Check whether the landlord has to give written notice and a chance to cure before declaring a default. Some forms allow default the day after rent is due. Also look at what the landlord can recover. Many leases let the landlord accelerate all remaining rent for the term, so it's worth negotiating a credit for rent the landlord collects from a new tenant.
Fire or other casualty. If the building is damaged and you can't operate, does rent stop? How long does the landlord have to rebuild, and can you terminate if it takes too long? Business interruption insurance matters here too.
Foreclosure. If the landlord's lender forecloses, your lease may be wiped out unless you have a subordination, non-disturbance and attornment agreement (SNDA) with the lender. If you're investing heavily in build-out, ask for one.
If you've signed a term sheet and have a lease in hand, contact Sandonato Law at 617-481-2742.