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There are so many variable expenses when starting or growing your business that there is no reason to voluntarily agree to another one, especially when it is often a major expense. That would be the cost of occupancy for your business.

And the landlord should want a tenant knowledgeable about and capable of fulfilling the lease obligations; otherwise, the landlord can have a non-paying tenant that costs the landlord money to get out of the premises as well as causing delay in readying the premises for lease again.

As you probably know or can anticipate, commercial leases are prepared by the landlord and almost always are a form lease in favor of the landlord. They can be short (which presents its own list of problems, or “shortcomings”) or very, very long, occasionally exceeding 100 pages, which presents an entirely different set of problems. Obviously, most commercial leases fall somewhere in between.

Nestled inside all of those provisions and terms which govern such routine matters are commencement and expiration dates for your lease; early-entry rights for build-out, if at all; the buy essay papers online duration of the lease term and renewal rights, if any; the amount of rent and methodology for calculating adjustments for renewal term rent; common-area maintenance expenses; insurance provisions; the uses to which the premises may be put; and the repair, maintenance and replacement of systems and components, such as electrical, plumbing, mechanical, HVAC (heating, ventilation and air-conditioning), roofs, glass, walls and foundations.

From our perspective, oftentimes the lease that is presented to the tenant has one or more materially different terms from what the parties’ term sheet indicates. Those contradictions between term sheet and lease can be easily remedied by a thorough review of the lease and its terms by your attorney. The bigger issues arise in the “silent boilerplate,” where the costs can be substantial to a tenant yet hidden in what may appear to be just “form language.” Some of the more frequent and potentially costly issues we see in commercial leases include the following:

HVAC System: There is no question that the HVAC system needs to be maintained during the term of the lease. Either landlord or tenant may attend to the details of arranging routine service calls, and the costs thereof will have to be incorporated into the rent if the landlord pays for such services, or factored into tenant’s occupancy cost if the tenant is to shoulder such expense. (In metropolitan St. Louis, the norm is for the tenant to bear the cost and purchase a twice-annual service contract from a certified HVAC repair company.) The sticky wicket here concerns the cost of repairing, and in some cases replacing, the entire system or its components. If the premises are brand new, the landlord should have no trouble standing behind the equipment placed in the premises to last, with only routine maintenance required. If the premises have previously been occupied, the tenant is both (i) without knowledge of whether the prior tenant did maintain the HVAC system on a semi-annual basis, and (ii) knowledgeable that the HVAC equipment is only designed to last for a period of years, generally 20.

For example, if a tenant takes occupancy under a five-year lease in premises that were built 17 years ago, and the original HVAC system and its components are still in place, who should bear the expense of major repairs, or even replacement, to system components? Why would a tenant place in service a capital asset having a useful life far in excess of the lease term? Yet, form commercial leases routinely shift this cost to the tenant.

CAM Expenses: Common-area maintenance (CAM) expenses represent the cost to landlord to operate the property of which the premises are but a part. CAM expenses routinely include general utilities, building and liability insurances, housekeeping and general property maintenance, real estate taxes, and our favorite, property management fees. All of these costs are known from the prior years of operating the rental property. We routinely advocate the position that those costs are expenses which should initially be charged against the rent, and only the increase from year to year borne by the tenant. If the tenant is to pay all costs of operations, whether entirely or pro rata based upon the percentage of premises under lease compared to the entire property, what is the rent intended to compensate the landlord for? And back to property management expenses: Aren’t such duties (property management) what you would expect a landlord to attend to? Renting property is their business. If they want to pay someone else to manage their business, so be it, but don’t charge the tenant for doing so.

Renewal Term Rent: Another sometimes contentious issue is the renewal term rent. Generally rental rates will not be set beyond the initial, and certainly the first renewal, lease term except in the rarest of cases. Thus, a rent calculation or formula has to be agreed upon. Frequently, recourse to the Consumer Price Index (CPI) is the initial proposal. But the problem with CPI is that, while generally easy to obtain, it is influenced very little, if at all, by the availability of and demand for commercial property for lease. CPI more readily reflects the adjustment to the cost of living, with the cost of residential property, gas, groceries, education and clothing among a myriad of other elements that go into the formula for consideration in calculating CPI. It has nothing to do with the value, or cost, of commercial property available for lease. Thus, caps are frequently used, a floor and a ceiling, to prevent wild swings in rental expenses.

Another means to establish renewal term rent is by an appraisal, but the cost in doing so can make using this approach less desirable unless the size of the premises and cost of the rent justifies doing so.