Should I Have an Attorney Review My Commercial Lease?

Should I Have an Attorney Review My Commercial Lease?

The short answer is “Yes”.

The long answer is “Yes, but make sure to hire a local commercial real estate attorney and have reasonable expectations.”

The reason I start this article with a simple “Yes” is because most commercial real estate office/retail/warehouse leases are legally binding contracts for hundreds of thousands of dollars.

Many commercial tenants think in terms of monthly rent when they rationalize their decision whether to pay an expert to scrutinize a lease before signing.

For example: “Our office rent is only $3,000 a month so that isn’t a huge deal.”

Of course, $3,000 a month on a 5-year lease is a total of $180,000. There are parts of the country where you can buy a house for that amount.

Anyone signing a contract this significant should have a local legal expert review.

Rates vary depending on the market, but you can call a few well-reputed local commercial real estate law firms to get an estimate of the expense of a lease review.

But there are a few caveats…

In an effort to save on legal fees, some tenants “hire” a family member or friend. These people are often attorneys or real estate professionals but are NOT local commercial real estate attorneys.

Here is why each of those words is important:

“Local”:

Lease structures, language trends, and acceptable market terms vary from region to region within a state. Commercial real estate leases in Sacramento are not always structured the same as leases in Fresno. A Fresno commercial real estate attorney will know the state laws but may not be familiar with the Sacramento market language and lease trends.

“Commercial Real Estate”:

A frequent misstep is to have your cousin Johnny who specializes in product liability lawsuits review commercial real estate lease. This often leads to the lease being covered in edits and then a lengthy fight over terms that could be completely normal for the industry.

If you need help finding an attorney in the Greater Sacramento Area (our region of expertise), please contact us and we’d be happy to help.   

 In addition to hiring a qualified attorney, you need to have reasonable expectations for the results of the lease negotiation.

Even if you hire the best local commercial real estate attorney money can buy, it doesn’t mean all their astute recommended changes will be accepted by the Landlord.

In general, we find tenants leasing a small percentage of the total building square footage (SF) have less leverage to secure their preferred lease language.

Intuitively, if you lease 20,000 SF of a 25,000 SF building, your business represents 80% of the building. This tenant has a lot of weight to throw around on lease language and more exposure if they sign a problematic lease.

Alternatively, if you lease 1,000 SF in a 100,000 SF project, your business is only 1% of the building. As you can imagine, a landlord is not very likely to make many exceptions from their standard lease and management process.

This does NOT mean a 1,000 SF tenant should not have their lease reviewed, it just means you should prepare to have a lot of your attorney’s lease changes rejected.

At the very least, most competent legal reviews are valuable because they look out for egregiously biased language and can explain any terms you don’t understand.

Remember that a commercial lease is a legally binding contract that should not be taken lightly.

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DISCLAIMER: This article is meant to be a commercial real estate broker’s personal perspective and should not be considered legal advice in any way.