After weeks of searching, you have finally found the ideal location for your business. The space is in a favorable, high-visibility location, and the rent structure is manageable. The landlord has presented you with a standard form of lease and is anxious for you to sign. You have scanned the first page or two of the lease, and the basic terms are consistent with the deal you struck with the landlord. Looks like everything is ready to go . . . but before you sign, let’s look at some of those devilish details that can make your leasing experience less satisfying or more costly than you anticipated. Consider some of these common — but not so obvious — lease issues.

Use of premises
Most landlords of commercial property want to know specifically what business a tenant will conduct in the premises, but defining a specific permitted use is not as easy as it might seem. Since the landlord probably does not understand what business you will conduct in the premises, this is one area where you may want to suggest specific language for the lease. While it is good to be specific in describing your intended use, it is just as important to draft language that will allow you flexibility. Over time, you may find your business going in a direction other than what you initially envisioned, and you don’t want a narrow usage clause in your lease holding you back. In addition, technology changes products and services rapidly, and you need the usage clause to be flexible enough to allow for new products, services, or technologies.

If you have negotiated the exclusive right to conduct a specific type of business in the building or the center, be sure it is stated clearly in the lease. This provision should include specific remedies in your favor if the landlord breaches your exclusive-use rights. Alternatively, if the landlord is prohibiting specific activities in the premises, the proscriptions should be as narrow and well defined as possible.

Compliance with laws
The lease will probably require you to operate your business and the premises in compliance with applicable law. Even though you intend to operate lawfully, this type of broad language can lead to serious problems. For instance, assume that after you take possession of the premises, you get a visit from the local fire department wanting to do an inspection. If they find issues, you may be asking, “What do you mean the fire-sprinkler system is not up to code and is going to require a $14,000 repair and upgrade? I just moved in!”

If your lease requires you to operate the premises in accordance with all laws without any qualifications, conditions, or exceptions, you may in fact be responsible for this type of repair cost. At a minimum, try to get the landlord to make a representation in the lease that the premises and all mechanical, electrical, safety, plumbing, HVAC, and other operating systems and facilities are, at the time you move in, operating properly and are in compliance with all laws, statutes, regulations, and ordinances, including the Americans With Disabilities Act, so that any problem discovered after you move in will be the responsibility of
the landlord.

Also watch this compliance-with-laws requirement in terms of the presence of hazardous materials and environmental conditions. In case the landlord, a prior tenant, or any other party has previously caused any environmental contamination at the premises, the lease should provide that you are not responsible for any pre-existing conditions and that you are responsible only for environmental problems or the presence of hazardous substances that you introduce to the premises. Although proving when an environmental condition arose can be difficult, see if the landlord will at least give a representation in the lease that he or she knows of no issues regarding environmental contamination, and have the landlord confirm that he or she has received no notice of violation and no inquiries from any governmental agency related to any environmental condition at the premises.

Zoning/occupational licenses
Operating a business in a commercial building almost always requires an occupational license. The city or county authorities will only issue an occupational license to your business if the actual use of the premises is a use that is permitted in that location under applicable zoning ordinances. Before you sign a lease, call or visit the appropriate governmental office, and talk to the people at the occupational-license department to determine if your intended use is consistent with current zoning ordinances. In addition, it is also a good idea to obtain a copy of the specific zoning ordinance listing the permitted uses in the applicable zoning district to confirm the verbal information you obtain from the licensing personnel. The nightmare scenario is to sign a lease, make improvements to the premises, and then discover that your intended business use is not permitted under local zoning ordinances. Unfortunately, most landlords are not willing to make any representations or warranties that your intended use of the premises as stated in the lease complies with local zoning restrictions; the burden of confirming lawful use of the premises in connection with occupational license issues falls on you.

Insurance
A prudent owner of commercial property will require all tenants to carry various types of insurance. Once you have the lease in hand, get the specific insurance requirements to your insurance agent immediately. Have the agent evaluate your current types of coverage, dollar limits, and deductibles and the ratings of companies in terms of the requirements under the proposed lease. Are all coverages required in the lease available? Are the required coverages available at a cost that will not drain your cash flow?

Also, if you have other locations for your business, will the lease allow you to obtain a blanket policy for multiple locations, or is a separate policy mandated for this particular lease location? In addition, is self-insurance permitted under the lease and, if so, for what coverages and to what extent? These are all questions that must be asked, analyzed, answered, and, if necessary, negotiated with the landlord prior to signing a lease.

Signage/parking/special needs
These matters may seem like minor items in the overall scheme of a lease, but I have been involved with lease negotiations for significant tenant space that have stalled and ultimately were terminated over signage and parking issues. Depending on the nature of your business and the intended use, these elements can be critical to your success at a particular lease location.

With reference to parking, the lease should identify specific locations, restrictions, and configurations for both exclusive and shared parking areas. In addition, if you will be using or parking any specialty vehicles at the premises, make sure that government regulations and the lease specifically permit such use. Another matter to consider is whether the landlord has the right to modify or move the agreed-upon parking areas without your consent. If parking adjacent to your premises is critical for the success of your business, this issue must be specifically addressed in the lease. Attaching an exhibit to the lease identifying parking spaces is a good way to make sure that specific parking arrangements are adequately addressed.

Signage issues can also be significant. In some cases, the landlord will allow any signage that is permitted under local zoning or ordinance provisions. However, in certain instances, the landlord will impose stricter criteria on the location, size, lighting, and types of signage, either due to particular building standards or perhaps due to restrictive covenants affecting the premises. In any event, a recommended approach is to have a drawing with the location, dimensions, plans, and specifications for the sign attached to the lease and approved by the landlord and the tenant upon lease execution.

Finally, if your business has special needs in terms of utilities or services (e.g., water, sewer, trash removal, gas, electricity, or satellite dish), be sure the lease specifically addresses these issues. For instance, if you need to be assured of a continuous supply of electricity, make sure the lease permits the installation and maintenance of generators. The lease should include the specifications for the generator as well as an agreed-upon location for the equipment. In addition, any contractor who is completing an interior build-out of the premises should confirm with the local building authority the requirements for installation and use of electric power generators to service the premises.

Conclusion
The issues outlined above are only some of the devilish details that can mean the difference between success and failure at your new lease location. These matters and a great number of other issues need to be carefully analyzed and fully understood before executing a successful commercial lease.

As senior counsel at Hodgson Russ, Kenneth A. Wenzel focuses on transactions involving real estate, commercial, and corporate law. He also has significant experience representing nonprofit corporations, including private foundations, private schools, charitable organizations, professional associations, and homeowner and condominium associations. Mr. Wenzel is admitted to practice in Florida (1982).