Ohio and Kentucky Commercial Lease Red Flags: A Due Diligence Checklist for Business Tenants Before Signing

There are several important issues to consider before signing a commercial lease in Ohio or Kentucky. Along with business-related issues, these include legal issues that can potentially have major business and financial ramifications. Our commercial real estate lawyers help prospective tenants make sound decisions taking into account all pertinent legal considerations.

Leasing commercial space presents both opportunities and risks. While leasing a new space can provide your business with the room it needs to grow, entering into a commercial lease agreement is fraught with potential legal, financial and practical issues. As a result, informed decision-making is key, and making informed decisions starts with identifying potential red flags in the agreement itself.

What Are Some Red Flags to Consider When Evaluating a Commercial Lease?

What are some red flags to consider when evaluating a commercial lease? Here are seven examples:

#1. Unclear Responsibility for Maintenance and Repair Costs

As with all types of commercial contracts, when entering into a commercial lease, clarity is key. While this is true across the board, one particular area where commercial leases tend to be vague is with regard to responsibility for maintenance and repair costs. If you are expecting the lessor to bear some (or all) of these costs, it will be critical to make sure this is clear in your lease.

#2. Hidden Operating Expenses

Likewise, it will be important to ensure that you have a clear understanding of the operating expenses your business will be expected to pay during the lease term. If the lease is silent, you should not assume that this means the lessor is assuming financial responsibility. Issues that are not clearly addressed are ripe for disputes, particularly when they involve financial issues.

#3. Lessor-Friendly Termination Clauses

Moving into a new space necessarily involves a sizable investment. In many cases, it also means giving up other opportunities. As a result, you do not want your business to be at risk of losing its new space unnecessarily. Commercial leases often include termination clauses that are heavily one-sided, and prospective tenants will often need to negotiate these clauses to ensure that they have adequate protections.

#4. Restrictions on Assignment and Subletting

Even if you have no intention of assigning or subleasing your business’s new space, it is important not to overlook the lease’s assignment and subletting clauses. These clauses are often heavily one-sided as well; and, if your business runs into financial trouble in the future, having the right to assign the lease or sublet the space could be critical for avoiding a costly default.

#5. Restrictions on Renewal

Prospective commercial tenants should also carefully consider the lease’s restrictions on renewal. Being forced to relocate can prove costly as well; and, in most cases, prospective tenants will be able to negotiate reasonable conditions that do not give their lessors unilateral control over whether they can renew.

#6. Vague Renewal Terms

While one-sided renewal restrictions can be unfavorable for commercial tenants, so can renewal terms that are too vague. For example, if there are no caps on future rent and expenses, or if your business will be required to sign the lessor’s “then-current” lease agreement, your business could be forced to pay much more in order to renew.

#7. One-Sided Dispute Resolution Clauses

One-sided dispute resolution clauses are another red flag for prospective commercial tenants. From clauses that require mediation or arbitration near the lessor’s headquarters to clauses that cap lessors’ potential liability, various provisions can impair tenants’ ability to seek remedies when necessary.

What Can (and Should) Prospective Commercial Tenants Do to Avoid Unnecessary Issues?

Given these concerns (among others), prospective commercial tenants must take an informed and proactive approach to protecting their interests. This involves multiple steps, and prospective tenants should give themselves plenty of time so that they are not rushed into making uninformed decisions.

The steps that prospective tenants should take to protect their interests before signing a commercial lease include (but are not limited to):

• Lease Review and Negotiation – Prospective tenants should engage legal counsel to review their commercial lease. They should also work with their legal counsel to negotiate unfavorable terms as necessary.
• Property Condition Assessment – Prospective tenants should also work with their legal counsel (and other professionals, as necessary) to assess the condition of the property before signing a commercial lease.
• Lessor Due Diligence – Conducting lessor due diligence is critical as well. Prior to signing, prospective commercial tenants should seek to ensure that their lessors have the financial wherewithal to meet their obligations throughout the lease term.

Again, these are just examples. From anchor tenant considerations to environmental concerns, prospective commercial tenants may need to consider various other issues as well. Once prospective tenants have a comprehensive understanding of all pertinent considerations, then they can make informed decisions about moving forward.

How Our Commercial Real Estate Attorneys Can Help

Our commercial real estate attorneys have extensive experience representing prospective commercial tenants in Ohio and Kentucky. We have extensive experience representing commercial tenants in lease disputes and litigation as well. As a result, we are intimately familiar with the issues that prospective tenants need to consider before moving forward, and we can provide the insights that business owners and executives need to feel confident in their decision-making.  

From reviewing and negotiating commercial leases to conducting property condition assessments and lessor due diligence, our attorneys are available to provide guidance and representation every step of the way. We can assist with assignments, subletting and renewals as well, and we can assist with resolving lease-related disputes as necessary.

Speak with a Commercial Real Estate Attorney at Rendigs

If you would like to speak with a commercial real estate attorney at Rendigs about a commercial leasing opportunity, we invite you to get in touch. To schedule a confidential consultation with an attorney at our Cincinnati office or our Louisville office, please call 513-381-9200 or tell us how we can get in touch online today.