The AIR Standard Form leases for commercial leasing are common. While there are advantages to using the lease for both parties, there are also risk that the parties should be prepared to address. This multi-series blog will focus on areas of the AIR Form lease of which tenants should be warry. Having an attorney assist in negotiating changes or modifications to the AIR Form Commercial Lease may provide added protections to you.
The Parties: As simple as it may sound, its common place in a commerical lease to have the parties identified as the landlord and the tenant not be the correct persons or entities. If a tenant is operating a business under business entity (a LLC, corporation, etc.), the entity name should be identified on the lease. If a tenant does not have a business entity, prior to signing the lease is the best time to explore the options to form a business entity which may provide personal liability protection to you.
Surprisingly, the landlord may also be misidentified. In order to have a valid lease, a tenant must have a signed lease with the party that actually owns the property. An attorney can review title to the property to confirm the correct parties are listed.
Rent and Free Rent Periods: Prior to the lease being prepared, landlords and tenants (or their brokers) negotiate the initial monthly rent and a rent increase schedule. The variations in determining the rent increase range from set, pre-negotiated increases each year, flat percentage increases, CPI increases, or CPI with a maximum and a minimum for each year. Clearly stating the date of the first increase and the method of calculation can greatly impact the cost of rent over the term of the lease or avoid future disputes between the parties.
To assist tenants with the initial startup expenses, landlords often offer rent abatement periods (periods of free rent). Again, understanding when these periods apply, the timing relative to commencing operations in the space and how they affect increase calculations are important to the financial viability of a business.
Retaining an attorney to review the lease, whether you are a landlord or a tenant will assist you in understanding your obligations and rights, assist in negotiating better legal terms for your lease and may ultimately provide you with greater protections than exist in the standard lease.
Ariel Bedell is an experienced attorney at The Loftin Firm. For questions relating to any other California real estate, corporate governance, land use, or estate planning matter, contact Ms. Bedell at .