A commercial lease can be a source of regular revenue for a property owner. However, it also creates certain responsibilities. Unlike a residential lease scenario, a commercial lease does not automatically make the property owner or landlord responsible for the maintenance of the facility or repairs to the property after a major storm. Addressing repair and maintenance expenses is often an important component of negotiating a new commercial lease.
What options do landlords have when taking on new tenants to occupy a business space in this regard?
1. Assuming maintenance and repair obligations
In some cases, landlords with commercial facilities retain responsibility for repairs and maintenance. They do not want to risk a tenant delaying or deferring necessary repairs. By continuing to assume responsibility for the state of the facilities, they can ensure that the property remains in appropriate condition. Landlords renting single units in large buildings or units in high-demand areas may feel strongly about keeping the facilities in the best condition possible. They may charge a premium rate for rent to offset the obligations that come with facility maintenance.
2. Dividing costs among tenants
When a commercial property owner has a multi-tenant office building or retail space, such as a strip mall, they may make each tenant responsible for a certain portion of their overall maintenance expenses. Common area maintenance (CAM) fees are standard practice when renting out one unit in a larger commercial space where the landlord provides certain amenities. CAM fees can include security services, parking lot maintenance and other basic costs. Landlords may have the option of either charging a set fee each month or requiring that each tenant assume responsibility for a percentage of total maintenance expenses each month.
3. Passing responsibility to the tenant
In certain scenarios, including build-to-suit leases and long-term leases of standalone facilities, the landlord may sign a lease that makes the tenant responsible for all repairs and maintenance. In fact, the landlord may even require that the tenant cover the costs of taxes for the property in a triple net lease. Such arrangements can help to minimize ongoing maintenance expenses and obligations, but they may create certain risks for the landlord as well. They may need to ensure that the tenant pays taxes to protect their interest in the property.
Frequently, commercial tenants may want to negotiate unique, favorable terms related to maintenance, repairs and associated expenses. Commercial property owners may benefit from having support during those negotiations and when adjusting lease terms accordingly. Crafting custom lease documents for each tenant can help landlords maximize their protection and minimize their financial exposure when providing business space to others.