lease terms

[Aaron Walker]

Hey guys, there might be a better place for this post, but I am pressed for time. What are the terms of a typical small office/storefront? My mother is being asked to sign a lease with some terms that were unexpected. The space is on main street in a small town of 16000 people. It is probably about 1k square feet and she is being asked to sign a lease where:
1. she is responsible for all maintenance
2. 5 year lease
3. required to have two kinds of insurance but I didnt really understand the terms there.
4. If she died, my sister and I would be responsible for paying the rent.

Are these typical commercial lease terms? What terms should we request?

Thanks

[Jeff S.]

As long as you and your sister are not agreeing to guarantee the lease by signing your names, the clause is unenforceable (actually laughable). Feel free to have your mom add my name as well if it helps her. It does have value in that it can be used when negotiating, i.e. you should expect something for it. What kind of space is this? It doesn't sound like the landlord is terribly sophisticated.

Maintenance comes in a few flavors. If this is a large retail center, a landlord will expect you to pay common area maintenance (CAMs), as well as maintaining your unit. You have to be careful here. I've seen leases where the CAM charges are pro-rated as a percent of space currently leased as well as a percent of gross leasable area. The former will kill you if you're in a poorly run center going vacant. What if you're the only one left? Or, one the first few tenants in a new center having problems leasing. Think they exist in this market? Never agree to this clause. You also have no control of the latter because the there's nothing saying the landlord can or will control his expenses. I recommend you negotiate a cap on the CAM charges with yearly increases written into the lease. If the CAMs come in less, the landlord keeps the difference. If they come in more, well, he better tighten his belt. This helps both of you control your expenses to numbers you can predict.

I tend to be a bit militant about maintenance of a unit. Yes, you’re using the premises and all mechanical systems, but you're also renting them. Thus, you have every reason expect them to be in excellent mechanical condition and to be easily repaired. I suggest an inspection before agreeing to anything. This is especially true of the roof (which would really fall under the common area if you're in a large center) and the HVAC. I'd agree to pay for quarterly maintenance by a licensed HVAC company, but not to replace a bad or previously unmaintained unit. Since you have no way of knowing what you’re renting long term, set a dollar limit on the amount you’ll repair.

Rather than one five year term, a three year lease with two two year options (with stipulated rents negotiated now) will reduce your mom's risk and might actually be more appealing to the landlord. The more “outs” your mom has, the better for her.

Don't skimp on insurance -- especially liability insurance. You're dealing with the public here.

Obviously, you need a RE attorney with commercial tenant experience to review all documents. Pass these by your insurance rep as well.

Jeff