Avoiding Legal Pitfalls When Negotiating Commercial Leases

 

Negotiating a commercial lease is a critical step for any business, whether you’re opening your first location or expanding operations. While the process may seem straightforward, commercial leases often contain complex terms that can lead to significant legal and financial challenges if not properly addressed. Here are some key tips to help you avoid common pitfalls and protect your business during lease negotiations.

 

1. Understand the Lease Structure

Commercial leases come in various forms, and it’s crucial to understand how the lease structure affects your financial obligations:

• Gross Lease: The landlord covers most expenses, such as property taxes and maintenance, while you pay a flat monthly rent.
• Net Lease: You pay rent plus a share of additional expenses (e.g., property taxes, insurance, or maintenance).
• Percentage Lease: Common in retail, you pay a base rent plus a percentage of your sales revenue.

 

Knowing which type of lease you’re negotiating ensures there are no surprises in your financial commitments.

 

2. Watch Out for Hidden Costs

Some leases may include unexpected fees or obligations that can significantly increase your costs. Key terms to review include:

• CAM (Common Area Maintenance) Fees: Understand what costs are included and whether they are capped.
• Repair and Maintenance Obligations: Ensure you are not responsible for major structural repairs or excessive upkeep.
• Utilities and Services: Clarify whether utilities are separately metered or prorated among tenants.

 

3. Negotiate Favorable Terms for Rent Increases

Many leases include provisions for rent escalations, which can quickly add up over time. When negotiating, consider:

• Capping Rent Increases: Request a cap on annual rent increases, tied to a fixed percentage or the Consumer Price Index (CPI).
• Step-Up Increases: If the landlord insists on increases, negotiate smaller increments over time instead of steep initial hikes.

 

4. Protect Your Business with a Strong Exit Strategy

Life happens, and your business needs may change. Negotiate lease terms that give you flexibility if circumstances require you to move or close your business:

 

• Early Termination Clause: Request a provision allowing you to terminate the lease early, often with a penalty or notice period.
• Assignment and Subleasing: Ensure the lease permits you to assign it to another party or sublease the space to a new tenant.

 

5. Understand Personal Guaranty Provisions

Landlords often require a personal guaranty, making you personally responsible for the lease if your business cannot pay. Before agreeing:

• Negotiate a Limited Guaranty: Limit your liability to a specific time or dollar amount.
• Sunset Clause: Request that the guaranty ends after a certain period of timely payments.

 

6. Clearly Define the Use of the Premises

Many commercial leases include restrictions on how the property can be used. Ensure the lease aligns with your business operations:

 

• Permitted Uses: Specify all activities your business plans to conduct to avoid conflicts with the landlord.
• Exclusive Use Clauses: In retail settings, negotiate exclusivity to prevent competitors from leasing nearby spaces in the same property.

 

7. Don’t Overlook Renewal and Expansion Rights

A lease that works well today may not fit your needs in a few years. Negotiate terms that allow for growth or continuity:

• Renewal Options: Include options to renew the lease at a predetermined rate.
• Right of First Refusal: Request the first opportunity to lease adjacent space if it becomes available.

 

8. Oregon-Specific Considerations in Commercial Leasing

When negotiating a commercial lease in Oregon, there are several state-specific laws and practices to keep in mind:

 

Implied Covenant of Good Faith and Fair Dealing:

Oregon courts recognize an implied covenant of good faith and fair dealing in every contract, including leases. This means landlords must act fairly and cannot interfere with the tenant’s reasonable expectations under the lease agreement. For example, landlords cannot impose arbitrary restrictions or act unreasonably in enforcing lease terms.

 

Accessibility Standards:

Oregon businesses must comply with the Americans with Disabilities Act (ADA) and state-specific accessibility requirements. Ensure the lease specifies which party (landlord or tenant) is responsible for ADA compliance, including upgrades to common areas or the leased premises.

 

Environmental Responsibility:

If the property has a history of environmental issues, Oregon law requires disclosure. Tenants should negotiate environmental clauses carefully to avoid being held responsible for pre-existing conditions.

 

Commercial Evictions:

Oregon has specific procedures for commercial evictions. Tenants should ensure the lease outlines clear notice periods and remedies for alleged breaches to minimize the risk of sudden eviction.

 

9. Consult with Legal Professionals Before Signing

Commercial lease agreements are often written to favor the landlord. Having a legal expert review the lease ensures you fully understand its terms and can negotiate from a position of strength.

 

An experienced attorney can:

• Identify potential risks and liabilities.
• Suggest modifications to unfavorable clauses.
• Ensure compliance with state and local laws in Oregon and Washington.
• Negotiate on your behalf for better outcomes that will save you money over time.

 

Why Work with Bridgeport Law Group?

At Bridgeport Law Group (BLG), we help business owners and property owners in Oregon and Washington navigate the complexities of commercial lease agreements. Whether you’re leasing office space, retail property, or an industrial facility, we’ll ensure the lease protects your interests and aligns with your business goals.

 

Take the Next Step

Before signing your next commercial lease, schedule a consultation with BLG to ensure you’re making a sound, informed decision. Protect your business and avoid costly mistakes by having the right legal team on your side.

 

Note: This article is for informational purposes only and does not constitute legal advice. For personalized guidance, please consult with a qualified attorney.