A review of important lease terms, Part 1

The lease is the controlling document for your properties. It is critical that each lease is securely crafted. Leases that overlook important terms undermine the reliability of your properties and their commercial value. This post will go over the most important terms you should cover in your lease and how you might utilize them.

First, this piece of advice might seem obvious, but it is important to cover it. You should always include specific rent terms that lay out the price, schedule for increases, additional costs (i.e. pets, parking, etc.). It is normal, especially if you are familiar or friendly with your tenants, to keep the contract terms “loose.” You need to ignore that impulse, in business, certainty is the safer choice.

Additionally, include allocation of duties. For example, what kind of repairs will you cover? What is the obligation of the tenant? Additionally, how are improvements addressed? Improvements are necessary for commercial properties because businesses invariably improve or modify their business premises to suit their unique needs.

Another common issue that comes up is not using the proper names for the parties to the lease. You need to include the full business name of the business that is renting the space; you cannot rely on an abbreviation or shorthand. Also, for the person signing on behalf of the business, you need their full name, title, and relationship to the business. Contracts are only valid with the signed parties, so it must be crystal clear who the signed parties are.

Do you need to lease some properties? If you do, you should consult a lawyer for legal advice. Vague or ambiguous leases are a perfect recipe for contract disputes. The last things you need in your real estate investments are disputes and ambiguity. A lawyer can review the terms and advise you of your company’s potential litigation exposure. You cannot eliminate all risk, but you can control and mitigate its effects.