Essential Terms to Negotiate in Commercial Property Leases

When it comes to leasing commercial real estate, negotiating favorable terms can set the stage for long-term business success. Whether you’re a small business owner opening your first location or a well-established company expanding into new markets, understanding key provisions in commercial property leases is crucial. 

Having a lawyer with business and real estate experience can make a significant difference in securing terms that protect your interests. This guide from Coppaken Law Firm focuses on what you need to know about leasing commercial property in Overland Park, Kansas, and nearby areas such as Kansas City, Missouri, Johnson County, and Jackson County.

What Are Commercial Property Leases?

A commercial property lease is a legal agreement between a landlord and a tenant for the rental of property used for business purposes. Unlike residential leases, commercial leases involve more complicated terms and longer durations. These agreements cover everything from rent and property maintenance to the specific use of the space.

Key Terms to Negotiate in Commercial Property Leases

When entering into a lease, there are several essential terms that tenants should carefully review and negotiate. Here are some of the most critical aspects:

Rent and Rent Increases

Rent is often the first term that comes to mind, but understanding how rent will change over time is just as important. Some landlords include provisions for annual rent increases based on a percentage or the Consumer Price Index (CPI). Negotiating a cap on rent increases can provide financial predictability.

Additionally, tenants should clarify:

• Whether rent includes utilities, property taxes, and insurance

• When and how rent payments are due

• Any grace periods for late payments

Lease Term and Renewal Options

The length of the lease and the options for renewal are critical for business stability. Commercial property leases typically range from 3 to 10 years. A longer lease term can lock in favorable rental rates, but it also commits you to the property for an extended period.

When negotiating renewal options, consider:

• Whether you have the right to renew and under what conditions

• The length of the renewal term

• How rent will be determined upon renewal

Permitted Use of the Property

The lease should clearly state what types of business activities are allowed on the premises. This is particularly important in multi-tenant buildings or retail centers, where landlords may restrict certain types of businesses to avoid conflicts with existing tenants.

Discussing the permitted use upfront helps avoid future disputes and ensures your business can operate without unnecessary restrictions.

Maintenance and Repairs

Responsibility for maintenance and repairs is a significant point of negotiation in commercial property leases. Landlords often try to pass on maintenance costs to tenants, so it’s important to understand what you’re responsible for. Common maintenance provisions include:

• Whether the tenant is responsible for interior or exterior maintenance

• Who handles major repairs, such as HVAC systems or structural issues

• How common area maintenance (CAM) charges are calculated and billed

Improvements and Alterations

Most businesses will need to make some modifications to the leased space. Before signing, negotiate terms for tenant improvements, including:

• Who pays for the improvements

• Whether the landlord will offer a tenant improvement allowance (TIA)

• What approvals are needed for alterations

Be sure to include a clause that specifies who owns the improvements once the lease ends.

The Importance of Lease Reviews

According to the U.S. Small Business Administration (SBA), reviewing a commercial lease with a qualified attorney can help tenants avoid costly mistakes that might not be immediately obvious. The SBA emphasizes that lease terms directly impact long-term financial obligations and operational flexibility.

Additional Provisions to Consider

Assignment and Subletting

Businesses evolve, and at some point, you may want to assign the lease to another party or sublet part of the space. Landlords often include strict restrictions on assignment and subletting to maintain control over the property’s occupants. When negotiating this term, request:

• The right to assign or sublet with landlord approval (which should not be unreasonably withheld)

• Clear guidelines on how the process works

• Whether you remain liable under the lease after assigning it

Early Termination and Exit Strategies

Circumstances change, and having an exit strategy in your lease can save significant costs if you need to relocate or close the business. Early termination clauses allow tenants to break the lease under certain conditions, often by paying a penalty. Negotiate:

• The conditions under which you can terminate the lease early

• How much notice you need to give

• Any associated fees or penalties

Security Deposit

Security deposits in commercial property leases are typically higher than those in residential leases. It’s important to clarify:

• The amount of the security deposit

• How and when it will be returned

• Any conditions under which the landlord can withhold the deposit

Insurance Requirements

Most landlords require tenants to carry specific types of insurance, such as liability coverage. Before signing, verify:

• What types and amounts of insurance are required

• Whether the landlord must be named as an additional insured

• How proof of insurance should be provided

How an Experienced Business Lawyer Can Help with Commercial Property Leases

Working with a lawyer experienced in both business operations and real estate law can make a substantial difference in your leasing process. Here’s how:

Identifying Problematic Clauses

Leases often contain clauses that can be problematic for tenants, such as ambiguous language or terms favoring the landlord. An attorney can review the lease and point out potential issues before you sign.

Negotiating Favorable Terms

With extensive experience in business law, your lawyer can negotiate terms that better align with your business goals. Whether it’s securing a tenant improvement allowance or limiting rent increases, a skilled negotiator can help you get a fair deal.

Drafting Lease Amendments

If changes to the lease are needed, an attorney can draft amendments that clearly outline the new terms and protect your interests.

Considering Local Regulations

In Overland Park, Kansas, and surrounding areas like Kansas City, MO, Johnson County, and Jackson County, local laws and zoning regulations can impact your lease. A lawyer familiar with these regulations can help you avoid issues down the road.

Common Mistakes to Avoid

• Overlooking hidden costs: In addition to base rent, tenants may be responsible for CAM charges, utilities, and taxes. Failing to account for these expenses can strain your budget.

• Failing to clarify use restrictions: Not clarifying the permitted use of the property can lead to disputes or even eviction if your business activities don’t comply with the lease.

• Ignoring renewal terms: Many tenants overlook renewal terms until it’s too late. Negotiate favorable renewal options before signing the initial lease.

• Skipping legal review: As the SBA highlights, skipping a legal review is one of the most common mistakes tenants make. A lawyer’s guidance can help you avoid costly errors and protect your long-term interests.

Local Considerations in Overland Park, Kansas

The commercial real estate market in Overland Park and the greater Kansas City area offers diverse opportunities for businesses. Whether you’re leasing space in a high-traffic retail center in Johnson County or securing office space in Jackson County, understanding local market conditions can help you negotiate better terms.

In areas like Centennial Hills, Blue Diamond, and Providence, landlords may offer incentives to attract long-term tenants. Working with a lawyer who knows the local market can help you identify and leverage these opportunities.

Call Coppaken Law Firm Today

Negotiating commercial property leases is a critical step for any business owner. From understanding key lease terms to avoiding common mistakes, careful preparation can save you time, money, and stress. Working with an experienced business and real estate lawyer in Overland Park, Kansas, gives you the confidence to secure a lease that meets your needs.

If you’re looking to lease commercial property in Overland Park, Kansas City, Missouri, Johnson County, or Jackson County, consulting with Coppaken Law Firm can make all the difference. Reach out today to learn more about how our professional legal guidance can help you achieve your business goals.