Dear Fielding Investment Team,
We just purchased our first commercial investment property with two retail stores! One of the units is already occupied and the tenant has expressed an interest in renewing. The other store is in pretty rough shape and since we all have some handyman skills, we put up new sheetrock, installed an ADA compliant bathroom and are planning to install a new dropped ceiling and lights once we have the specifications from our intended tenant.
Our question is do we have to hire an attorney to draw up a commercial lease or are there good ones available on the Net? We want to be protected, but we don’t want to incur unnecessary expenses, especially after spending so much time and money on the renovation.
Courtney W., Winston-Salem, NC
Sounds like congratulations is in order for you and your investment group. You will always remember your first acquisition, first new tenant, etc., and we hope those memories are good ones.
The simple answer to your inquiry is that there are numerous quality lease forms available online. We use those that we have developed over the years, and thus have limited familiarity with the many that are available online, but clearly it makes economic sense for you to consider using one of those forms to learn about the various provisions that need to be part of your final form lease. We suggest that you read a few of those that appear most comprehensive and then make your own list of the items that each paragraph addresses. You will likely be surprised to see to so many legal points that need to be addressed. Indeed, at first it may seem overwhelming, but within short order you will come to appreciate that the lease provides you with protection from a number of pitfalls, running the gamut from things that you might readily expect such as environmental matters, personal guarantees, insurance indemnification, remedies, renewal options, etc., to limitations that you may wish to impose on what the tenant is permitted to do on your property [by way of example, you might wish to protect your other tenants from this operator’s direct competition with them].
Once you have the checklist of the items you feel need to be in your form lease, we recommend that you retain an attorney to insure that your list is complete and to make provision for laws that may be pertinent only in your community, county and state. At that stage you can fill in the form lease that you feel best incorporates your intent and then present it to you attorney for final revision. This methodology will not only save you money on the drafting of your partnership’s form lease, but will also better familiarize you and your partners with all of the issues that need to be set [and at times negotiated] in your leases. [We recommend that you also establish a form LOI – letter of intent – that contains the specific elements of the proposed deal. The greater the detail, the less the chances for arguments and broken deals.]
Do not be shocked to find your prospective tenant’s attorney finds language in the lease your present that he wishes to change … after all even if the lease were perfect, lawyers are paid to find nuances and opportunities that limit their client’s exposure and expense. So long as you have covered all relevant matters and understand all of the issues that are being protected under the lease you will likely find that the other side’s “redline” changes will not alter the intent and safeguards built into a good lease document.
Over time you will become sufficiently knowledgeable that you will be able to spare your partnership the expense of your lawyer’s review … however we recommend you get a “check-up” of your form lease every year or two … just in case there are changes in the law or in “case law” that might need to be included.
Good luck Courtney … it’s wonderful to hear about that first project.
The Fielding Investments TeamRead More