In this current economic climate, Philadelphia landlords are aggressively recruiting new tenants with offers of robust rent abatement and fit out allowances. Since the commercial lease is often one of a small business's primary expenses, it is a good idea to review any proposed lease carefully before signing or making changes to your existing deal.
A thorough lease review is important so you understand not only what the lease includes, but also what the lease does not include; and what terms are implied by law. Often, we see clients presented with lease agreements that contain terms which are unenforceable in court. Although rent, term, purchase options and security deposits are always the key business terms to any lessee, there are other legal issues which must be considered.
While not an exhaustive list, major issues that a tenant should consider prior to signing or renewing include:
1. Never enter into a commercial real estate lease in your individual capacity. If necessary, offer to personally guaranty part of the lease or pay a higher security deposit. Be wary of the landlord who states, "Don't worry. That is why you have insurance."
2. Pennsylvania law does not require a commercial landlord to mitigate his damages. That means the landlord can refuse to sign a replacement tenant and hold you liable for the unpaid rent. Therefore, make sure your lease requires the landlord to mitigate.
3. If a zoning change is required for you to operate your business, negotiate in advance under what circumstances the lease can be terminated if you are unable to obtain either a zoning change or variance. Also, be sure to include in your lease that your landlord has an obligation to cooperate and support you before the zoning board. This may seem like common sense, but you'd be surprised how often it becomes an issue.
4. You may be responsible under applicable law for environmental problems that occurred on the leased property prior to you getting there. Review the environmental and indemnification sections of your lease carefully and ask questions concerning prior "uses" of the property.
5. Be sure that you have meaningful rights if your landlord sells the property.