Legal Considerations When Drafting Commercial Leases to Avoid Litigation

Negotiating and signing a commercial lease is a major step forward for an investor or businessperson. Landlords and tenants alike face both short- and long-term consequences that can have dramatic impacts on their futures. 

Ultimately, to avoid the unpleasantness, costs, and time commitments of courtroom disputes, a well-drafted lease is key. Consider the following as commonly occurring elements in well-drafted commercial leases. 

Costs Over and Above Rent

So much of the time, disputes regarding a commercial lease come down to money. When both parties leave the signing table with a full understanding of the financial implications, the chances of litigation are kept to a minimum. While it is likely both a tenant and a landlord understand each party’s responsibilities regarding rent, topics like operating expenses and rent escalations may be less clear.

When and how rent may be increased under a commercial lease is referred to as rent escalation. Rent increases are common within the terms of a lease. When that language is clearly drafted, it puts both sides at ease with the agreement itself and with their mutual commitment to abide by its terms. 

Under a gross lease, the landlord is responsible for operating expenses while the tenant pays fixed rent. Under a net lease, the tenant pays rent in addition to expenses like insurance and property taxes. Finally, under a triple net lease, the tenant pays operating expenses, maintenance costs, and taxes and insurance. A tenant must understand their financial responsibilities under a lease to avoid disagreements and the possibility of finding themselves involved in litigation down the line. 

What is the Length of the Lease and How is it Renewed?

One of the most important parts of a commercial lease is the language involving: 1) the lease term, and 2) how a tenant may renew the lease at the end of its term. 

A tenant, before signing a commercial lease, should determine whether the lease’s term coincides with the long- and short-term goals of the business. 

The opportunity to renew the terms of a lease should also be explicit within the agreement. A tenant should have a well-marked process listed in the agreement for initiating a lease renewal. Likewise, a landlord should include terms in the lease that allow them to increase rent or make other necessary changes at the end of a lease term. 

How May Property be Utilized?

Commercial leases should clearly specify the permitted use of the property. Since New York City enforces strict zoning laws, activities like changing motor oil would not be suitable in an office or similar professional setting. Clearly defining the property’s use in the lease helps both tenants and landlords avoid misunderstandings and significantly reduces the likelihood of disputes and litigation. 

Knox Law Group, PC – Serving Clients in Commercial Lease Disputes 

Contact New York City commercial lease lawyer, Knox Law Group, today for a free case review. Minimizing the risk of litigation in commercial lease drafting begins with having a plan and executing on that plan. Allow us to help you face the challenges in your particular commercial lease scenario.