Commercial Lease Agreements

An essential part of a franchisee’s business is the premise in which they operate. Before a franchisee signs a commercial lease agreement, similar to the franchise agreement, it is worthwhile to have an attorney review the often lengthy and complicated contract.

Some of the essential provisions of the commercial lease agreement are the term of agreement, renewal, termination, permitted use, payment of fees, obligations of the landlord and tenant, dispute resolution, and finally, force majeure.

Here is an example of the questions that can be asked regarding the aforementioned provisions:

Term of Agreement

• When is the commencement date?
• Are there any requirements for commencement date to enter into force, such as the tenant opening their premises to the public?
• Who exactly are the parties to the agreement?

Renewal

• Is there a renewal provision?
• If yes, are there any obligations that the tenant must satisfy for the renewal to occur?
• Is the renewal automatic, or does it require approval from the landlord?

Termination

• What default will cause automatic termination?
• Are there curable defaults?
• If yes, what is the time afforded to cure the default?
• What are the tenant’s obligations after termination?
• How quickly must the tenant remove themselves and all their assets from the premises after termination?

Permitted Use

• What can the premises be used for?
• Does the permitted use allow the tenant to operate their business?
• What modifications can the tenant make to the premises?

Payment of Fees

• When are the fees due?
• How are the fees to be paid?
• Are there any late fees?
• How many missed fee payments would constitute default?

Obligations of the Landlord and Tenant

• What are the common areas?
• What areas is the tenant responsible for?
• Who is responsible if there are problems with the premises?

Dispute Resolution Mechanism

• Will the disputes be solved by the courts or alternative dispute resolution mechanisms?
• Is mediation mandatory?
• If arbitration is selected, is it ad hoc or institutional?

Force Majeure

• The pandemic has made this provision especially relevant.
• Does the force majeure clause include pandemic-associated events?
• Is the rent affected by the pandemic/force majeure abated, or only deferred?

Please contact Franchise Attorney Mario L. Herman for further assistance in evaluating commercial lease agreements.