It’s been a while since I wrote about commercial leases, but I wanted to finish up my series by discussing use, maintenance and repairs, and subleasing. If you’re interested in my last articles, you can find them here.
When I discuss use in the context of a lease, I’m referring to the way that a tenant is allowed to use it’s space. Technically, a lease allows you exclusive possession of a space to use as you like, but most leases limit your use to something reasonable for the building.
For example, I have an office in a bank building. There are other offices in the building. I’m permitted to use my space for any reasonable office function. I happen to run a law firm, but I could be an accountant or architect or something similar. I cannot open a glass blowing studio. That would require serious changes to my space that are not permitted by my lease.
Other specific uses might be outright banned by a lease. For example, it’s common for a retail lease to ban using the space for a second-hand resale shop. That’s because the landlord wants to project a certain image of its tenants and a resale shop might detract from that image.
Dangerous uses are usually banned as well. No storing dangerous items, for example. You’ll also see provisions banning strip clubs and adult book stores. The image is a problem, but there are also liability issues associated with those locations.
Maintenance and Repairs
Who is responsible for maintenance? This is a hot topic among clients. It usually comes up when something breaks. That’s when a tenant learns that they are on the hook for a new furnace or HVAC unit. A tenant should always review this section of the lease very closely, and if they’re responsible for maintenance of big-ticket items, they should learn about how old those items are and factor the cost of repair or replacement into the cost of their lease.
Generally, the larger your space, the more you’ll be responsible for. If you rent a small office, you might not be responsible for anything. My building pays for lightbulbs, for example. It’s common to be responsible for anything directly within your unit. If you have a bathroom, you’re probably responsible for unclogging it, etc. Normally, you don’t have to pay for items that are shared between units, like an HVAC unit. However, landlords try to add these things in whenever they can.
If you rent an entire building, you’re probably responsible for much more. This is especially true if you have a longer lease. Furnaces, HVAC, and plumbing are all usually your responsibility. Therefore, as the tenant, you should inspect those items to determine what repairs or replacement will be necessary and budget those costs into running your business.
Subleasing is another hot topic because most leases explicitly say you cannot sublease your space. Tenants don’t usually notice these provisions until they want to sublease. Then it becomes a problem.
Almost every lease says that the landlord must approve a sub-tenant, but there is usually another line that states that the landlord shall not unreasonably withhold its approval. Sometimes landlords remove that line, but the courts will still hold them to that standard. The landlord can’t turn away a reasonable sub-tenant.
The original tenant is usually still on the hook if the new tenant doesn’t pay. That is standard. Therefore, you should not bring a sub-tenant who you don’t believe will pay the rent. You could be on the hook for two leases if you’re not careful.
The other thing to consider is that if you bring a new tenant to a building and want to break your lease, they pretty much have to accept the new tenant as a sublessor because suing you for unpaid rent will be extremely difficult. This is due to a legal concept known as a duty to mitigate damages. If I break my lease, you can sue me for the unpaid rent until you found a new tenant and for the difference between what I should have paid and what the new tenant is paying. A landlord can’t just leave a space vacant. They have a duty to release the space in order to reduce their damages. If you literally bring them a new tenant, they have to accept it so long as it’s reasonable because if they don’t, they are failing that duty.
I have posted four articles about commercial leases covering all sort of topics. I think this will be my last one, but if you have any specific questions about leases or anything else, please free feel to reach out to me at email@example.com.