Seattle and the state of Washington continue to be in a constant state of expansion. New commercial buildings are springing up left and right; in fact, Seattle tops the nation as the city with the most tower cranes for the third straight year in a row. With new developments come new commercial spaces, and if you’re in the market for office, retail or industrial rental space in the Emerald City, lease negotiations are going to be in your near future.
While shorter term residential leases can be pretty straightforward, commercial leases in Seattle tend to be longer term, complex and highly negotiable. It’s your responsibility as a tenant to enter into any prospective lease with eyes wide open, making sure that your interests are protected and accounted for within the document. Don’t wait until you’ve signed on the dotted line to have the lease contract reviewed, by then it’s too late.
Some terms in a commercial, industrial or retail lease are pretty basic. Here are a few you’re probably already familiar with.
Term: The duration or term of tenancy
Premises – the property or commercial space available for lease
Rent – Agreed upon financial amount tenant pays
Permitted Use – The agreed upon manner the tenant is allowed to use the space (coffee shop, office space, record store, etc.)
Cost and Expense Allocation – Utilities and maintenance expenses distributed between the landlord and tenant
Assignment Provisions – Terms that outline whether the tenant is allowed to sublet or assign the leased building/space to a new owner
Renewal Options – outlined options for future renewal.
There are other leasing terms though, that are just as important, but often overlooked due to unfamiliarity. Tenants just aren’t aware of them, or assume that their landlords have their best interests in mind, but sometimes that’s not the case. Read the entire lease. If something is unclear, be vigilant and educate yourself, so when you sign, you feel confident that the terms are fair and just.
These are 5 important, but often overlooked terms in commercial leases in Seattle.
Recapture Clause – this is a lease provision that’s common in commercial property (particularly office and retail) and allows the landlord to reserve the right to retake the leased space in the event the tenant proposes to sublease or reassign the premise. If not worded properly, the tenant runs the risk of losing their lease for merely proposing a sublease and reassignment, not acting upon it. In this case, the landlord could not only reject the proposal, but possible exercise a right to take over the space. On some occasions this is reasonable, but often times this clause is left in where it was not a negotiated term or appropriate for the type of commercial premises.
Audit Rights – this provides the tenant with the right to review/audit the landlord’s expenses. If not worded appropriately, or not included in the lease, the tenant will not have an efficient way to confirm whether or not the charges (taxes, common area expenses, insurance, etc.) they must pay are accurate or legitimate. Audit rights enable a tenant to confirm the accuracy of the maintenance charges the landlord sends along. An audit clause should cover who performs the audits, who pays for it and how you’ll handle any errors the audit may discover.
Defining Delivery Date and Commencement Date – This is essentially an agreed upon timeline that outlines when the landlord is required to deliver the premises to the tenant, the date the lease commences and the date when rent commences (there are sometimes grace periods between when a lease begins and when tenants are actually charged rent).
Without an explicit delivery date, disputes may arise relating to the delivery of the space to the tenant. When tenant improvements are being performed by the landlord, unexpected delays can occur that could leave tenants without a space to operate. Other examples include delays in a development project or a landlord simply not pushing the previous tenant to vacate the premises. In either event, an outside delivery date can be included in the lease that stipulates if the landlord hasn’t delivered the space by a specific date, the tenants receive an agreed upon rent credit or opportunity to terminate the lease.
Casualty Provisions – This section outlines a tenant and landlord’s right to terminate the lease if the property has undergone damage (fire, hurricane, earthquake, etc.) and cannot be repaired within a certain period. The landlord and tenants need to be comfortable with the casualty provisions, including the obligation to restore and the termination rights. Sometimes, the insurance proceeds are not sufficient to restore the premises or there is a significant delay in construction, these provisions often allow parties to terminate the lease if substantial repairs are necessary or if the casualty occurs in the last part of the term of the lease.
Insurance Provisions – these provisions are not very obvious, but could result in an expensive (and uninsured) surprise for commercial tenants. Tenants must have their insurance company or advisor review the entirety of these provisions to confirm what’s required and whether or not their company can actually follow through and provide coverage that is in compliance with the lease. Sometimes leases can be cost prohibitive or outline provisions that insurance companies can’t follow through on including the dollar amount, terms, time frame and coverage. Failure to have this section reviewed and approved by a commercial insurance professional may expose a commercial tenant to risk of breach of the lease or a gap in coverage.
The real estate attorneys at Holmquist & Gardiner can provide a value-added review of commercial lease contracts and transactions, helping the landlord or tenant protect their interests from the beginning.
Specializing in commercial real estate law, we approach every client interaction with detail and professionalism. We routinely represent landlords and tenants in negotiating and drafting leases for commercial property including office, retail, or industrial space. We work hard to make sure all parties are aware of the terms, requirements and risks associated with the contract, helping them protect their assets and interests. We recommend clients contact us during the letter of intent stage of a lease negotiation, allowing us to lend our expertise and guidance throughout the entire process. We are always focused on making sure leasing negotiations are a reciprocal success for both parties.
If you’d like to learn more about commercial leasing, read our blog entitled, Commercial Leases – Keys to Success for Landlords.
These are just a few issues to keep in mind and do not represent a complete guide to lease review. If you’re interested in talking with a real estate attorney at Holmquist & Gardiner about your upcoming lease negotiation, we love to set up a free consultation in person or over the phone, contact us today!