This is the second part discussing the pitfalls of standard leases. The first part dealt with residential leases, and this part will discuss commercial leases. As an attorney and summary process mediator handling evictions, I have been witness to commercial lease issues. Many of these disputes can be avoided by following four easy tips.
1. Clear business names
The first part of any lease is the names of the parties involved. As most landlords want a personal guarantee, this means the correct names of the commercial tenants are needed. Before writing the lease, ask for a copy of the prospective tenants’ drivers’ licenses along with current home addresses, cellphone numbers and email addresses.
If the tenants have formed a business entity, then you should also ask for a certificate of incorporation. This is either free from the state or requires a small fee to be paid by the tenant.
This verifies that the people who are signing the lease are who they say they are.
2. Fast money
Hopefully, the commercial tenancy is a wonderful experience with a long-lasting tenant who has a successful business. However, what happens if the tenant is unable to pay. Most standard leases state something like, “when the tenancy is completed, then the landlord can be reimbursed.” What does that mean?
Let’s say that you have a 5 year lease with ABC Corp. Two years into the lease, ABC Corp stops paying you. You want the remaining money due on the lease-right? Well, you have to wait until the lease expires, which is another 3 years to be able to collect your rent.
To fix that issue you near an acceleration clause that in effect says that when the contract is breached due to nonpayment, then the whole lease becomes due immediately. No waiting.
3. Additionally
Even in the standard lease there is a section titled INSURANCE where it is the tenant’s responsibility to get insurance. The landlord fills in the amount they require. First, there needs to be follow up. An insurance binder or proof of insurance needs to be held by the landlord, however, even better is for the landlord to be named as an Additional Insured.
When a landlord is named as Additional Insured, the landlord will be contacted when there is a change in the policy and if the tenant stops paying the insurance. Therefore if there is a loss, then there are no surprises. The landlord knows who the insurance company is and can make a claim.
Also, in regards to insurance, make sure your tenants are getting the right kind of insurance. For example, if there are storefront windows, then glass coverage should be a requirement.
4. Utilize the business
It is amazing how few landlords know anything about the businesses that are using their spaces. It should not be a surprise what the tenants do in the space you have rented to them. You should be a customer of their businesses and recommend them when you can. For example, if you rent to a restaurant, then be a patron of that restaurant. You should also pay full price. Why? They pay you full rent, and you want their business to be a successful. (Though I am fine with free dessert.)
There is also a marketing opportunity you may be missing by not promoting a business that you rent to. Many commercial landlords have websites, and on these websites my suggestion is that you add logos of the businesses that rent from you. (You need the tenants to send you the logos and give permission.) What a great way for you to get attention to your commercial property, while helping your tenant succeed!
These four tips will help you have a business relationship with your tenants along with decreasing your issues.
