It’s essential to read and understand the fine print of a commercial real estate lease before you sign it. Once the ink has dried, it’s often too late to make any changes. Your business may be negatively impacted by the terms and conditions you agreed to.

Our clients know they’ll need to understand the meaning and future ramifications of such things as “CAM” and arbitration clauses. While it’s highly recommended that you have an expert lease analysis performed, here are a few things that you should learn about before you sign on the dotted line.

There are many different types of commercial real estate lease agreements. Some of those include:

• Double Net (Net-Net) – In this type of lease, the tenant will pay for taxes, utilities, and insurance. The landlord will cover maintenance and building repairs.
• Triple New Lease (NNN) – The tenant will be required to pay for maintenance, taxes, and insurance.
• Modified Gross Lease – A modified gross lease will require a single lump sum of rent money, but might exclude such services as utilities or cleaning, which would otherwise be your responsibility.
• Full Service (Gross Lease) – This lease will most often include such expenses as maintenance, utilities, taxes, and insurance. The benefit to this is that you’ll only make one payment, and monthly expenses are predictable.
• Single Net – A single net lease requires the payment of a portion of the property taxes as well as utilities. The landlord will cover any other expenses.

Is your lease assignable? If not, the landlord may have the right to terminate the lease if you sell your business, rather than letting the new owner take it on. This kind of transfer is called a lease assignment and the lack of it could potentially kill the sale of your business. The landlord may even have the agreed-upon right to terminate the lease immediately upon your request to assign.

In many cases, the landlord will want to re-negotiate the lease with the new tenant. But our clients know that you can request the landlord remove this provision or modify it so that it doesn’t apply in case you decide to sell the business.

Even if the landlord agrees to modify or remove the assignable lease section, they may still want the option to terminate it if the new tenant is not financially acceptable. This is a point of negotiation not to be overlooked.

While all businesses aim for year over year growth, sometimes you need to cut expenses. Having a favorable sublessee clause can help during these time periods. You’ll be able to rent out a portion of your lease space under the same exact lease terms, which can help cover one of your biggest monthly expenses. Many landlords won’t allow a sublessee, but if you negotiate it up front, it’ll be there when you need it. 

Many landlords will use boilerplate wording that is standard on commercial real estate leases. Our clients know the importance of having someone knowledgeable read it word-for-word to ensure that the things you’ve negotiated don’t conflict with the language on the lease, or flat-out contradict it.

Review everything to ensure that’s it’s correct. Look at the rent escalation terms, start and end dates, rent, and any special considerations that you’ve negotiated. If in doubt, don’t assume—ask an expert for a 2nd opinion. 

Be sure that you have a complete and total understanding of what you can—and can’t—do, such as terminating the lease under special circumstances. You’ll also need to be aware of what you and your landlord’s obligations are. 

You’ll find the acronym “CAM” repeated over and over again in many leases. It stands for “common area maintenance” and spells out the percentage of these fees that you, as the lessee, are responsible for. It’s most common for a CAM fee to take into consideration the percentage of the building that you’re renting. But many leases are different. Read the fine print to ensure that this fee will not vary based upon how much of the building is rented by others at any given time.

The CAM section of the lease is one of the more confusing aspects and a place where many businesses wind up losing money and encountering unexpected expenses. For example, some landlords will ask that your CAM fees cover a portion of their legal expenses or marketing efforts. They also might ask for administration fees in excess of 3%.

If you’re concerned about the unknowns of a CAM fee, you can request a CAM Stop lease. This way, you’ll only pay for property taxes and increased CAM fees above the initial lease year. Your base rental rate might be adjusted accordingly, but this removes any uncertainties regarding the CAM fee. You could also ask for a cap on the CAM so that it won’t increase more than a certain percentage. 

Many commercial real estate leases have an arbitration clause that requires both parties to use an arbitrator in the event of a dispute. This can help cut down on legal fees and can significantly cut down on the time that it takes to reach an agreement.

Check to see if there’s a mandatory arbitration clause, and if so, that you have the right to participate in the selection of an arbitrator.

Many landlords will require you to guarantee the lease personally. It’s rare to find one that will allow you to forgo this requirement. However, our clients know that you can always negotiate the terms and conditions of this personal guarantee. For example, you can negotiate to only be responsible for a guarantee that lasts three to six months, or for a percentage of the agreed-upon lease term.