You should approach lease agreements carefully and try to protect your interests as much as possible. With almost 20 years of experience in commercial real estate, I have been involved in the negotiation of over 200 leases. Of course, there are cases when the tenants signed an agreement with almost no changes, completely changed by the landlord, or, on the contrary, according to the form of the tenant (and these are transactions with a wide which is 10–30 outside. sq. m). But in most cases there is a skew according to the conditions either in one direction or the other, and the classic win-victory is rarely achieved. Therefore, you should know about the important points that are important not to forget.
First of all, let me point out that you should be prepared for the fact that long-term lease agreements can be 40-100 pages, and sometimes more. But you should always pay attention to the important points of the contract.
Duration of the lease agreement
For the most part, long-term contracts end in 5-7 years, but there are cases when it is within 3 years or 15-20 years. For the landlord, it is always important to conclude a long-term contract. First, by renting it to one or more tenants for a long time, you can earn income and not think about anything. Second, the lessor can recoup his investment in the property without the risk of facility downtime. Finally, the landlord has the opportunity to sell the property (or place) to an investment fund at a good price at any time.
Underwater rocks:
- A long-term agreement must be registered accordingly, it is necessary to clearly limit the zones and terms of responsibility for the registration of the agreement.
- If possible, place restrictions on the landlord’s sale of the property. If you occupy a relatively large or entire area, then you have the opportunity to agree on the best scenario in the case that the buyer must agree with the tenant, but most likely it is a certain period of notice or a restriction on one or another specific. buyer if the tenant, for example, has restrictions under sanctions or negative experience with such a buyer.
Termination option and penalties for early termination
Today it is rare to find lease agreements with both parties’ early no-fault termination within a certain period without penalties. Some of the big landlords practice terminating contracts with the mutual impossibility of early termination without fault, with a fine of the amount of rent until the end of the contract, but usually the fine is from 3 to 12 month. The amount of the fine is usually the same for guilty and innocent terminations.
Underwater rocks:
- Carefully evaluate the points where the contract may end due to your fault, but you cannot always control these points, and the landlord may abuse them, for example, tin- well to express the intended purpose, pay attention to the possible termination due to the mistake of your employees – a violation of the rules for the use of the item.
- It is necessary to provide for the possibility of wrongful termination due to the fault of the owner of the land if you cannot operate the premises if there are serious problems with the condition of the facility and the impossibility of using it for its purpose or approaching it .
- Do not hope for a good relationship with the landlord, because the places you rent can be sold to another owner, and he can look at the clauses of the contract differently.
Security fee
When signing a lease agreement, it is usually necessary to pay a security deposit that is usually 2-3 months in no more than 5 days. But there are precedents when the security amount reaches 6 months, and in the case when the property is built for a tenant (BTS), up to 12 months. The landlord needs a security deposit to quickly borrow funds for repairs or renovations to the property, or if the tenant fails to pay rent on time (and the tag -the owner of the land has the obligation to pay the bank loan payments).
Underwater rocks:
- Provide for the possibility to control the amounts taken from the security deposit, because in the contract you have the obligation to fill it on time.
- The security deposit is indexed annually in the same way as the rental rate.
- Clearly provide a mechanism to offset the security deposit in the last months of the lease or return method.
Annual indexation of rental rates
The long-term contract must include a mechanism for indexation (increasing the rental rate). Basically, the parties try to agree on the indexation level of the CPI. But since the real inflation is usually not equal to the CPI, on the one hand, and the tenants have to predict their budget, on the other hand, the parties to the contract usually agree on a fixed indexation (at the level of 7 -10% ) or provide corridors from 7 to 15%. I have precedents when they agreed to fix 15%.
Underwater rocks:
- Rents must be indexed one year after signing the lease or even after signing the access certificate. In some cases, tenants determine the indexation at the beginning of each calendar year.
- It happens that landlords stipulate that the rent is indexed at least once a year. Be careful with those words.
- If the indexation is clearly stated in a long-term contract, you do not have to agree to a larger increase. However, if your contract provides for no-fault termination with 3-6 months notice to either party, you risk receiving an early termination notice from the landlord, and the premises will be rented to another tenant at a higher rate instead of you.
Vacation rentals
There is a practice that the tenant needs a certain time to settle after accessing the premises and cannot use the premises for their purpose. The size of the holiday depends on the complex commercial conditions and the term of the contract. The most common is 1 month, but sometimes landlords may offer as little as 2 weeks or not offer holiday rentals at all. There are cases when the rental holidays are 2-3 months, but this is if the lease agreement is valid for, for example, more than 15 years, or if the tenant has gained access to the premises after passing AIA (before commissioning).
Underwater rocks:
- During the rental holidays, the tenant pays the utility bills and NUT.
- Be prepared to be offered to spread your vacation rental over several months. For example, if you have a rental holiday of 1 month, then for the first three months you will pay 2/3 of the monthly rental rate.
These are the key points of the contract, but there are many important sections that you should pay attention to, for example: guarantees of the parties to the contract, inseparable development, insurance of goods, property and civil liability, sublease, structure of OPEX (operational payments), regular redecoration of the premises of the tenant, method of payment of utility bills, restoration of the premises after their vacancy, method of measurement of the premises for the calculation of rent payment – BTI or BOMA.