Get Three Key Assurances Before Signing Lease
Even if a space seems to be perfect for your office or retail business, it could have flaws that won’t pop up until after the lease is signed, and you have little or no recourse against the property’s owner. That’s why it’s important to remember that your lease negotiations aren’t limited to just the usual issues, such as determining the length of the lease term and renewals, hashing out a cotenancy clause, and agreeing on operating expenses. During negotiations, you should also ask the owner for representations and warranties about the following items that you’ll need in order to operate in the space.
Owner’s authority. At the outset, tenants should make sure that the owner has the authority in the first place to enter into the lease especially when you’re dealing with a property manager. If it doesn’t, the lease may not be valid.
Condition of premises. If the premises isn’t in compliance with the law, it can drive up the price for a tenant that must bring it into compliance later, at its own cost, in order to be able to use the space for its business.
Tenant’s use. Proper zoning is also a key representation to get from the owner. After all, if you move into your space without that assurance from the owner, and later find out that the property isn’t zoned for your use, you’ll be on the hook for paying rent for a space you won’t be able to legally use for your business.
You can also level the playing field with an owner that will make no or only limited representations and warranties by performing due diligence to root out any foreseeable problems.
For a detailed explanation of the representations and warranties you should ask for, tips for performing due diligence, and Model Language that you can use, see “Request Representations and Warranties for Items Crucial to Operation,” available to subscribers here.