Escalation clause The escalation clause provides for increases in rent over a specified period of time. Escalation clauses are often tied to outside factors such as the consumer price index, or the increases may relate to actual cost increases incurred by the landlord.

Compliance with the ADA This provision is necessary in all commercial leases. It can be a warranty, so that the landlord is certifing that the premises complies with the ADA, or it can be an allocation of responsibility between the landlord and the tenant if the premises is found not to comply with the ADA. If it is a warranty, the prospective tenant should be sure that the promise is based on some professional audit and not the mistaken assumptions of the landlord.

Go dark clause This clause gives the tenant the option to terminate the lease or gives the tenant the right to a reduction of rent, if other tenants go out of business or leave the premises. For example, if the prospective tenant is counting on an adjacent supermarket to bring in business, then there should be some provisoin made for the possibility that the supermarket closes or leaves the location.

Renewal Option For many businesses continued physical presence at the same location is crucial. This clause states that the tenant has the right to renew the lease for a specified time at a specified or determinable rent.

Sign Specification This clause describes the tenant's rights to put up signage. The tenant would want to be sure that the signage rights and limitations fits with the business plan and local zoning regulations.

Rent Provisions Obviously the amount of rent and potential increases is of paramount importance to the parties to a commercial lease. There are many ways to structure rent such as flat rate, steup up, percentage of gross sales, percentage of net sales, base rent plus percentages of sales, or an expense participating lease involving fixed rent plus a share of the landlord's expenses such as repairs, property taxes and insurance. From a tenant's persepective, it is crucial to ensure that the business will be able to afford the rent charged because commercial leases usually involve a good deal of money. If the small business owner is wrong, they are usually very wrong. Depending on the nature of the business, it also may be important to negotiate a grace period within which to pay late rent without incurring penalties or termination of the lease.

Negotiation Prospective tenants are usually excited about getting started, convinced they have a great business plan, and under the mistaken impressions that landord's terms are not negotiable. The reality is that most small businesses fail, and the tenant should remember that the quickest way and most irreperable way to fail is to sign a commercial leases at the wrong price. The tenant should limit the downside and be sure that the total potential loss is one that they can live with by limiting the initial term of the lease. It is generally much wiser to sign a lease for a shorter term than risk getting married to a long term lease that is unworkable. Liability for commerical leases is often the cause of bankruptcy, and persons with substantial assets to protect should be sure that they are not personally gauranteeing the obligations of their business. If the tenant expended the time and effort to incorporate their business, they should not lightly throw that limited liability away when dealing with a landlord.

Aside from negotiating a lease to suit the nature of the business, a tenant should be sure to independantly research the landord's representations of the amount of miscallaneous charges for common area maintenance and other variable charges. The prospective tenant should talk to the other tenants before signing a lease and spend time at the sight to insure that items such as parking are not a problem. Again, there is usually a good deal of money at stake and there is no substitute for inquiry and direct physical inspection of the prospective sight.

Copyright 2003, The Gauss Law Firm.