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4 red flags to look for in a commercial lease

On Behalf of | Jul 19, 2022 | Real Estate |

Commercial leases contain clauses and addendums in place to protect the landlord and the tenant.

As a lessee, it is important for you to understand what you sign and how it can affect your business.

1. A no-limit real estate tax clause

A real estate tax clause is standard in a commercial lease. It fairly requires you to pay a portion of taxes on the space you rent. However, tax clauses with no limit on increases could cause strain for the tenant. Ensure the lease agreement includes a cap on tax increases, even if the owner sells the property.

2. A demolition clause

A landlord will sometimes include a demolition clause to allow them the chance to terminate your lease, usually with a six-month warning, for demolition. They may use the opportunity if they receive an offer from a developer.

3. A relocation clause

A relocation clause allows the landlord to relocate your property. For example, if you rent in a shopping center, your landlord could move your business to an area of the property with less appeal.

4. A clause that restricts use

Use clauses can restrict you from expanding your products or services. For example, if you rent a property to open an arcade business for adults, your lease may restrict you from adding a bar or food service later. You want to ensure the use clause has some flexibility for use.

These clauses serve a distinct purpose and are sometimes necessary. However, you may benefit from going over the lease with a professional to ensure your business has ample protection to maintain stability.