New York Commercial Real Estate Lease Lawyer
In New York’s ever-changing real estate market, the right commercial real estate lease can mean the difference between success and failure, growth or stagnation. Choosing an experienced New York commercial real estate lawyer can ensure a solid foundation for long-term growth and avoid costly complications and litigation.
The Fridman Law Firm not only delivers the expertise needed to negotiate the right terms but also partners with you to ensure that your legal strategy aligns with your commercial real estate portfolio.
Common Types of New York Commercial Real Estate Leases
There are three basic types of commercial real estate leases, with several sub-types and variations. Here is an overview of the most common types of commercial real estate leases in New York:
1. Gross Lease/Full Service Lease. With a Full Service or Gross Lease, the tenant pays a base rent. The landlord pays all additional building expenses, including insurance, real estate taxes, maintenance fees, and other costs. These types of leases are typical in multi-tenant commercial spaces, like office buildings.
- Modified Gross Lease. The most common type of Gross lease is the Modified Gross Lease, where the tenant pays base rent and utilities, as well as a percentage of the building’s operating costs. For example, a tenant occupying 20% of a building is responsible for 20% of the operating costs. These leases often start with rent plus utilities, with the operating cost expenses to be calculated at the end of the first (base) year and collected every year thereafter.
2. Net Lease. The Net Lease is another very common type of commercial real estate lease. With a Net Lease, the tenant pays rent, utilities, and a proportion of the building’s operating expenses, including maintenance, taxes, and insurance. As above, a tenant occupying 20% of the building is responsible for 20% of the operating costs. These types of leases are very common for long-term commercial rentals where the tenant wants more control of their space. There are several subtypes of Net Leases, including:
- Absolute NNN Lease. With an Absolute NNN Lease, the tenant assumes full responsibility for the space, paying rent, utilities, taxes, insurance, and maintenance costs. The landlord has no financial obligations at all. These leases are typically very long-term for tenants with exceptional credit and are very rare.
- Triple Net or NNN Lease. In a Triple Net Lease, the tenant pays rent, utilities, and a proportionate share of all building operating expenses, including maintenance fees.
- Double Net or NN Lease. With a Double Net or Net Net Lease, the tenant pays rent, utilities, and a portion of property taxes and insurance. The landlord pays for all structural maintenance costs.
- Single Net or N Lease. With a Single Net Lease, the tenant pays for rent, utilities, and a portion of property taxes. The landlord pays for insurance, maintenance, and repairs.
3. Percentage Lease. With a percentage lease, the tenant pays rent and a percentage of their gross sales. The landlord typically pays taxes, insurance, and maintenance fees. These types of leases are common in commercial retail settings, like shopping malls.
While these are the basic types and common modifications of commercial real estate leases, it is important to remember that every contract is negotiable, and every commercial real estate lease is unique. Consult an experienced New York commercial real estate lease attorney to determine the best type of lease for your business and then negotiate the best terms for your needs.
Important Leasing Elements for a Landlord
Some of the most important elements in a lease agreement for a landlord include:
- Rent Clause. Naturally, the lease specifies the amount of rent, but the rent clause also stipulates when and how rent will be increased over time.
- Security Deposit Clause. Commercial real estate security deposits in New York are especially complex. Landlords are required to hold these funds in an interest-bearing account and can retain 1% per year as an administrative fee. The rest of the interest must be held in trust until the termination of the lease, applied to the tenant’s rent and use of the space, or paid annually to the tenant. Because commercial spaces have multiple tenants with multiple security deposits, the task of managing the commingled funds and tracking each tenant’s earned interest can be difficult and complex, and management of the security deposit funds must be included in the lease.
- Description of the Premises Clause. Another clause that may seem basic but that is critically important is the description of the premises. Ensure that the clause specifically and accurately describes the space to be rented and specifies the usage of any shared or common areas.
- Maintenance Clause. The maintenance clause includes who is responsible for maintenance costs and repairs, as well as specifying how maintenance issues and requests will be handled. Ensure that this clause specifies the applicable building codes and standards that will be used for the duration of the lease.
- Insurance Clause. Many landlords require a tenant to carry insurance in order to protect themselves and the premises. Many leases specify that the tenant must carry property and/or liability insurance, and other insurances may be applicable depending on the type of space or business.
- Gross-Up Clauses. In a partially occupied commercial space, the shared costs of common area maintenance, utilities, and other expenses may change over time as other spaces are rented and occupancy increases. In a Triple Net Lease, “Gross-Up” provisions stabilize these costs, allowing the landlord to anticipate higher occupancy and reduce fluctuations due to changing occupancy levels.
- Termination or Exit Clauses. Leasing to new businesses and startups is especially risky for landlords, as these companies may perform unpredictably. Many businesses with a form of Net Lease discover that their portion of a building’s operating expenses are higher than they can afford, and they try to break their lease and relocate. A termination or exit clause can stipulate how much notice is required, specify early termination costs, specify buyout or surrender options, and other exit strategies.
For New York businesses who find it necessary to break their lease and relocate, it is critical to consult with an expert commercial real estate lawyer before beginning exit negotiation. There are many potential avenues for terminating a commercial lease, and an experienced attorney can find the optimal solution for your situation.
Important Leasing Elements for a Business Owner
For a business owner, especially for entrepreneurs and startups, these are some of the most important elements in your commercial real estate lease:
- Parties Clause. While it is obvious that the parties to the agreement are an important but obvious aspect of the lease, it is important to make sure that the business, rather than any individual, is a party to the lease.
- Term Clause. Many leases come into effect when they are signed, requiring tenants to begin paying rent, carrying insurance, and other financial obligations right away. Many startups may sign an agreement before they are ready to take possession of the premises, so it is important to specify start dates for various conditions and obligations.
- Use and Exclusives Clause. Use and exclusives clauses specify exactly how you can and cannot use the space you have leased. In some cases, they may restrict the types of activities on a premises, limit access to the premises, or limit signage and advertising on the premises. Ensure that your permitted use of the space is compatible with your long-term goals as well as your immediate needs.
- Improvement and Alterations Clause. Improvement and alterations clauses specify the ways in which you can alter your commercial space, including who pays for these alterations and how they affect rent and other costs. These types of clauses can be difficult and time-consuming to negotiate.
- “Good Guy” Clause. New York’s famous “good guy” clause is a simple solution to complicated termination clauses. It releases a tenant from a lease early, provided they give sufficient notice, pay their obligations until the new termination date, and leave the premises in good condition.
In the complex and dynamic real estate environment of New York, it can be difficult to negotiate a commercial real estate lease with the affordability and flexibility that entrepreneurs need to thrive. The Fridman Law Firm has the expertise and experience to negotiate the commercial real estate lease elements that empower growing businesses.
Landlord vs. Tenant Liability in New York
Most New York commercial real estate leases require the tenant to carry liability insurance that covers damage or injury due to the tenant’s activity on the premises. The lease usually specifies the type and amount of insurance required, although these terms may be negotiable.
Commercial tenant liability insurance typically covers bodily injury, personal injury, and property damage. They release the landlord, their employees and agents, and other mortgagees or lessors from liability.
If the tenant has not leased the entire premises, they should make sure that the lease terms protect them from any damages incurred by the landlord, their employees or agents, or any other occupants of the building.
It is important that insurance terms and liability be negotiated carefully as part of the lease in order to avoid unnecessarily high insurance premiums or excessive exposure to liability claims.
Getting the right commercial space and the right lease is crucial to the success of your business. Finding the right commercial real estate lease lawyer who understands your needs and can negotiate for your terms positions your enterprise for success in an unpredictable world.
The Fridman Law Firm is proud to build long-term relationships with our clients, partnering with them to help them protect their assets and reach their objectives. Contact our experienced team to schedule a consultation today.