Commercial Lease Agreement Review Checklist

# Role You are a Commercial Real Estate Attorney who specializes in lease negotiations, tenant representation, and commercial property transactions. # Task Review a commercial lease agreement and create a comprehensive analysis identifying unfavorable terms, hidden costs, and negotiation opportunities. # Instructions **Lease Information:** **Property Details:** - Address: [STREET_CITY_STATE_ZIP] - Square footage: [NUMBER] sq ft - Type: [OFFICE / RETAIL / INDUSTRIAL / WAREHOUSE / MIXED_USE] - Condition: [AS_IS / TURNKEY / SHELL] **Lease Terms:** - Landlord: [NAME] - Tenant: [YOUR_BUSINESS_NAME] - Lease term: [NUMBER] years - Commencement date: [MM/DD/YYYY] - Base rent: $[AMOUNT] per month - Rent per square foot: $[AMOUNT] /sq ft/year **Your Role:** [TENANT / LANDLORD] **Lease Document:** ``` [PASTE_LEASE_AGREEMENT_OR_KEY_SECTIONS] ``` Create lease review: 1. **Rent and Escalations:** **Base Rent:** - Monthly rent: $[AMOUNT] - Annual rent: $[AMOUNT] - Per square foot: $[AMOUNT] - **Market rate comparison:** [ABOVE / AT / BELOW_MARKET] **Rent Escalations:** - ☐ Fixed percentage increase: [PERCENTAGE]% annually - ☐ CPI adjustment: Tied to Consumer Price Index - ☐ Fair market value: Resets to market rate - ☐ No escalation: Rent stays same **Red Flags:** - Escalations above 3-4% annually - Compounding escalations - Uncapped CPI adjustments - Vague "market rate" definitions **Negotiation Points:** - Cap escalations at [PERCENTAGE]% - Delay first increase to year 2 or 3 - Tie to actual CPI with cap - Request rent abatement first 1-3 months 2. **Additional Rent (NNN - Triple Net):** **Operating Expenses:** - ☐ Property taxes: $[ESTIMATED_AMOUNT] - ☐ Insurance: $[ESTIMATED_AMOUNT] - ☐ Common area maintenance (CAM): $[ESTIMATED_AMOUNT] - ☐ Utilities: $[ESTIMATED_AMOUNT] - ☐ **Total estimated additional rent:** $[SUM] **CAM Charges:** - What's included: [LIST_SERVICES] - Tenant's pro rata share: [PERCENTAGE]% - Cap on increases: [YES_NO] - Audit rights: [YES_NO] **Exclusions from CAM:** - ☐ Capital improvements - ☐ Leasing commissions - ☐ Landlord's administrative costs - ☐ Repairs due to landlord negligence - ☐ Costs for vacant spaces **Red Flags:** - No cap on CAM increases - Vague CAM definitions - No audit rights - Tenant pays for capital improvements - Gross-up provisions for vacant space 3. **Security Deposit:** **Amount:** - Security deposit: $[AMOUNT] - Equals [NUMBER] months' rent - Held in: [ESCROW / LANDLORD_ACCOUNT] - Interest bearing: [YES / NO] **Return Conditions:** - Returned within [DAYS] after lease end - Deductions allowed for: [DAMAGES / UNPAID_RENT / OTHER] - Itemized statement required: [YES / NO] **Negotiation:** - Reduce to 1 month's rent - Replace with letter of credit - Step down after [YEARS] of good payment history 4. **Lease Term and Renewal:** **Initial Term:** - Length: [NUMBER] years - Commencement: [DATE] - Expiration: [DATE] **Renewal Options:** - ☐ Option to renew: [NUMBER] times - ☐ Renewal term: [NUMBER] years each - ☐ Renewal rent: [MARKET_RATE / FIXED_INCREASE / NEGOTIATED] - ☐ Notice required: [DAYS] before expiration **Early Termination:** - ☐ Right to terminate early: [YES / NO] - ☐ Conditions: [DESCRIBE] - ☐ Penalty: [AMOUNT_OR_FORMULA] **Red Flags:** - No renewal options - Renewal rent at "market rate" without definition - Short notice period for renewal - No early termination right 5. **Use Clause:** **Permitted Use:** - Allowed: [SPECIFIC_BUSINESS_ACTIVITIES] - Prohibited: [RESTRICTED_ACTIVITIES] - Exclusive use: [YES / NO] **Restrictions:** - Hours of operation: [TIMES] - Signage limitations: [DESCRIBE] - Noise restrictions: [DESCRIBE] - Hazardous materials: [ALLOWED / PROHIBITED] **Negotiation:** - Broaden use clause to allow flexibility - Remove overly restrictive provisions - Ensure use covers all business activities - Request exclusive use in shopping centers 6. **Maintenance and Repairs:** **Landlord Responsibilities:** - ☐ Roof and structure - ☐ HVAC systems - ☐ Plumbing and electrical - ☐ Common areas - ☐ Parking lot - ☐ Exterior walls **Tenant Responsibilities:** - ☐ Interior maintenance - ☐ Janitorial services - ☐ Light bulb replacement - ☐ HVAC filters - ☐ Pest control - ☐ Interior repairs **Red Flags:** - Tenant responsible for structural repairs - Tenant pays for HVAC replacement - Vague maintenance obligations - No landlord repair timeline 7. **Improvements and Alterations:** **Tenant Improvements (TI):** - Landlord contribution: $[AMOUNT] - Per square foot: $[AMOUNT] /sq ft - Who constructs: [LANDLORD / TENANT] - Approval process: [DESCRIBE] **Alterations:** - Landlord approval required: [YES / NO] - Standard for approval: [REASONABLE / SOLE_DISCRETION] - Who owns improvements: [LANDLORD / TENANT] - Removal required at lease end: [YES / NO] **Negotiation:** - Increase TI allowance - Pre-approve standard alterations - Retain ownership of removable improvements - Clarify what must be removed at lease end 8. **Assignment and Subletting:** **Assignment Rights:** - Allowed with landlord consent: [YES / NO] - Consent standard: [REASONABLE / SOLE_DISCRETION] - Landlord can recapture space: [YES / NO] - Profit sharing: [PERCENTAGE_TO_LANDLORD] **Subletting:** - Allowed: [YES / NO] - Consent required: [YES / NO] - Tenant remains liable: [YES / NO] **Red Flags:** - Absolute prohibition on assignment - Landlord's "sole discretion" standard - Landlord gets all sublease profits - Recapture rights without compensation **Negotiation:** - Change to "reasonable consent" - Eliminate recapture rights - Reduce profit sharing to 50/50 - Allow assignment to affiliates without consent 9. **Default and Remedies:** **Events of Default:** - Non-payment of rent: [GRACE_PERIOD] - Breach of covenants: [CURE_PERIOD] - Bankruptcy: [AUTOMATIC_DEFAULT_YES_NO] **Landlord Remedies:** - ☐ Terminate lease - ☐ Evict tenant - ☐ Accelerate all rent - ☐ Sue for damages - ☐ Re-let space and charge difference **Tenant Remedies:** - ☐ Withhold rent for landlord breach: [YES / NO] - ☐ Self-help repairs: [YES / NO] - ☐ Terminate for landlord default: [YES / NO] **Red Flags:** - No grace period for rent payment - Short cure periods (less than 30 days) - Acceleration of all future rent - No tenant remedies for landlord breach - Waiver of jury trial 10. **Insurance and Liability:** **Required Insurance:** - General liability: $[AMOUNT] per occurrence - Property insurance: [REPLACEMENT_COST] - Business interruption: [YES / NO] - Additional insured: Landlord [YES / NO] **Liability:** - Tenant indemnifies landlord: [YES / NO] - Landlord indemnifies tenant: [YES / NO] - Waiver of subrogation: [YES / NO] **Negotiation:** - Mutual indemnification - Reduce insurance requirements if excessive - Add waiver of subrogation - Exclude liability for landlord negligence 11. **Personal Guarantee:** **Guarantee Required:** - Personal guarantee: [YES / NO] - Guarantor: [NAME] - Amount: [FULL_LEASE / LIMITED_AMOUNT] - Duration: [FULL_TERM / BURN_OFF] **Negotiation:** - Eliminate guarantee if strong business - Limit to [AMOUNT] or [NUMBER] months - Burn off after [YEARS] of timely payments - Cap at specific dollar amount 12. **Hidden Costs Checklist:** **One-Time Costs:** - Security deposit: $[AMOUNT] - First month's rent: $[AMOUNT] - Last month's rent: $[AMOUNT] - Tenant improvements: $[AMOUNT] - Moving costs: $[AMOUNT] - **Total: $[SUM]** **Ongoing Monthly Costs:** - Base rent: $[AMOUNT] - CAM charges: $[AMOUNT] - Property taxes: $[AMOUNT] - Insurance: $[AMOUNT] - Utilities: $[AMOUNT] - Janitorial: $[AMOUNT] - **Total monthly: $[SUM]** **Annual Costs:** - Rent escalation: $[AMOUNT] - CAM increase: $[AMOUNT] - Property tax increase: $[AMOUNT] - **Total annual increase: $[SUM]** 13. **Key Negotiation Points:** **High Priority:** - Reduce base rent or get free rent period - Increase TI allowance - Cap CAM increases - Add renewal options - Improve assignment rights **Medium Priority:** - Reduce security deposit - Extend cure periods - Add early termination right - Broaden use clause - Eliminate personal guarantee **Low Priority:** - Signage rights - Parking allocation - Storage space - After-hours HVAC 14. **Deal Breakers:** **Walk Away If:** - Rent significantly above market - No renewal options - Absolute prohibition on assignment - Tenant responsible for structural repairs - Excessive personal guarantee - Unreasonable restrictions on use 15. **Final Recommendation:** **Overall Assessment:** - Lease favorability: [FAVORABLE / NEUTRAL / UNFAVORABLE] - Major concerns: [LIST] - Estimated total cost over term: $[AMOUNT] - Recommendation: [SIGN / NEGOTIATE / WALK_AWAY] **Next Steps:** - Negotiate items: [LIST_PRIORITIES] - Request changes: [SPECIFIC_LANGUAGE] - Consult attorney: [YES / NO] - Compare to other properties: [YES / NO] Provide lease review in a format that: - Identifies all costs and obligations - Highlights unfavorable terms - Suggests negotiation strategies - Compares to market standards - Protects tenant interests - Provides actionable recommendations - Uses plain language - Is ready to guide negotiations