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When considering a commercial lease agreement, focus on costs and responsibilities, and keep in mind that almost everything is negotiable. Of course, economic conditions and other factors often dictate whether terms favoring the landlord or the tenant will prevail in negotiations.

Commercial lease agreements should address the following critical deal points:
鈥� who will be responsible to pay for and perform maintenance, repair and replacement of core systems;
鈥� what will be the standards and requirements for assignment and subletting of the lease; and
鈥� who will be responsible for compliance with current and future laws and regulations affecting the leased property.

Commercial buildings usually have numerous systems that are serviced; some are HVAC, plumbing and electrical, which can be tremendously expensive to repair or replace. Also, these systems generally require regular maintenance. It is critical to establish who will be responsible for these tasks and who will bear the costs 鈥� and the responsibility and the cost burden need not lie in the same party. Remember, almost everything in a commercial lease is negotiable, and it is reasonable to split the burdens between the landlord and tenant, depending on each party鈥檚 leverage and negotiating skill.

An assignment or subletting clause could let a tenant eliminate or reduce the burden of making rental payments 鈥� a very useful option if business goes bad. A tenant should attempt to include a flexible assignment clause that provides for its full release from all obligations and liabilities under the lease. Of course, as an added layer of protection, or in lieu of a full release, the tenant should seek indemnification from a subtenant. A tenant also should note that the landlord will likely include a provision that may deny assignment or subletting of the lease. In this case, the tenant should at least require that the landlord鈥檚 approval of an assignee or subtenant may not be unreasonably withheld.

Landlords should determine whether to allow assignment or subletting, and how to maintain control over the assignment or subletting process. If a landlord wishes to place any restrictions on assignment and subletting, it should be contained in the lease agreement to eliminate confusion or loss of leverage in the future. Further, it is recommended that a landlord retain final approval of any subtenant. The lease should require a comprehensive review process, including the right to analyze the subtenant鈥檚 credit report. A landlord will generally attempt to keep the initial tenant responsible for lease payments after an assignment or sublease occurs. A landlord should always retain the ability to assign the lease to a new landlord, to hold open the opportunity to sell the building or otherwise restructure their business.

Nearly every commercial building is subject to city, county, state and/or federal regulations. For example, the Americans with Disabilities Act sets certain standards for access to buildings, and local fire codes may limit occupancy and set standards for fire extinguisher systems. However, landlords and tenants frequently do not negotiate who will be responsible to pay for, or implement, compliance with regulations. If, for example, applicable fire codes were to be updated to require installation of a sprinkler system in a building that is not already equipped, the responsible party would have to pay for some potentially very expensive improvements.

As you consider these and other variables, remember that the results of negotiations will depend on economic conditions, each party鈥檚 potential leverage and market standards for leases. Given the current state of our economy, it is difficult to determine whether landlords or tenants have more bargaining power; it seems that both are struggling. Gain an advantage by analyzing market conditions and increasing your leverage by researching alternatives.

Dustin R. Moyes is an attorney with Sussman Shank LLP. He focuses on business transactions, commercial financing, corporate law and real property transactions. Contact him at 503-227-1111 or [email protected].