Why is Due Diligence Before Signing a Commercial Lease Important?

Posted by Hecht Walker, P.C.
Posted on June 13, 2014

an office building for leaseDue diligence is the legal term for a wide variety of searches and inquiries undertaken before entering into a legal contract. In short, it means doing your homework in order to protect yourself. In commercial real estate leasing, this involves investigating a range of issues connected with the lease, the building, and the landlord or leasing company. All information gathered in this process can materially influence the tenant’s decision on a lease of real property.

One component of due diligence related to leasing property includes an onsite inspection to help assess the overall condition of the property. Taking an inventory of everything from wall conditions and water spots, to obvious foundation cracks will allow the tenant to know if repairs are needed. The ventilation, air conditioning and heating equipment can be a major expense for a tenant which can be impacted by each system’s age and whether it is under warranty. Checking maintenance records and thoroughly reviewing any proposed contracts will clearly identify which party has responsibility for repair or replacement of every element or system belonging to the property. At some point any commercial property will need to be repaired. One way to avoid costly surprises when systems need to be replaced is to have your real estate attorney from Hecht Walker review the lease to make sure you are fully protected and understand each party’s responsibility.

Start From Square One with Measurements

Due diligence should also determine the square footage in any commercial lease. Many sellers or property owners fail to specify an exact property size, even when charging tenants per square foot. By taking measurements, taking photos and notes to document the conditions of the premises, a prospective tenant will clarify potential issues and have proof that the issues existed prior to occupancy.

Property usage is another factor in due diligence. Many tenants do not realize that a property owner has the power to rent out spaces to competitors, which can adversely affect business success. The language of the lease contract can often be negotiated to include a no-competition clause to prevent the landlord from leasing nearby property to another company that sells the same type of services or products.

Get It in Writing Before Signing

According to Jon Jordan, Partner at Hecht Walker, “The most important thing related to Due Diligence from a legal perspective is to make sure all parties thoroughly read and completely understand all of the provisions and real and potential ramifications of the legal contract before signing on the dotted line.”  His advice, “If there are provisions that you don’t understand make sure you seek guidance from a legal professional to help you before you sign the lease.” Once any commercial lease contract is signed, it may be too late to negotiate additional changes.  Consulting with a real estate lawyer at Hecht Walker to assist with the due diligence process before entering into a commercial lease with another party will help keep you protected.

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