Chapter Seven: Commercial and Industrial Leases
- Residential vs. Commercial/Industrial Leases
- Commercial/Industrial Lease Components
- Calculating SF
- Calculating CAM
- Lease Terms
- Negotiating a Lease
- Key Questions
- Alternative Lease Arrangements
- Landlord's Responsibilities
- Know Your Landlord and Building Staff
- Collective Action
- Eviction or Lease Termination
Depending on your needs, a commercial or industrial lease might be preferable to a residential lease or property purchase. A lease is a legally binding contract between a landlord and/or property owner and a tenant that defines the rights and responsibilities of both parties, and includes information on duration, rent, use restrictions and other matters.
DISCLAIMER: Commercial and industrial leases are much more complex than residential leases, and should involve a lawyer's assistance. If you need legal advice - information that applies to your specific situation - you should consult a lawyer. See Chapter 4 for information additional information on when to hire a lawyer. This chapter is not a substitute for legal advice, but raises fundamental points to consider when entering into a commercial or industrial lease. The City of Seattle and contributors to this Chapter do not guarantee that the information is complete and up to date.
While previewing different properties is a must, actually making comparisons between spaces can be difficult. A space that seems reasonably priced at first glance might become very expensive when you add additional costs for property taxes, monthly utility fees, common area maintenance and other associated expenses.
Hidden costs of commercial and industrial leases are often found in the type of lease available. They include:
- Gross Lease: The tenant pays a monthly fixed rent to the landlord, and the landlord pays all operating expenses such as real estate taxes, insurance costs, repair costs, common area maintenance costs (CAM), and -- sometimes -- utilities. This is the primary lease type for residential properties.
- Net Lease: The tenant pays rent for the space plus a percentage of the operating expenses -- such as CAM, insurance costs and real estate taxes -- as well as utilities. CAM costs can include maintenance fees for common areas such as lobbies, bathrooms and elevators. Also known as double net (a.k.a. net-net) or triple net (a.k.a. net-net-net) leases, with the primary difference being how much of the operating expenses charged to the tenant. This chapter uses the broader term "net lease" to refer to all models and variations of net leases.
Residential vs. Commercial/Industrial Leases
Laws governing commercial and industrial leases treat landlords and tenants as business equals. Both parties are considered capable of freely negotiating their respective rights and obligations, and are responsible for protecting themselves from unfair business practices.
In the eyes of the law, the landlord and tenant have read, understood and agreed to every word contained in a signed lease, which is viewed simply as a contract. For this reason, and unlike residential tenants, commercial tenants are provided few special protections from landlords.
The rights, responsibilities and obligations outlined in the Residential-Landlord Tenant Act do not apply to tenants with commercial or industrial leases. For more information about the Ordinance, review Chapter 6: Residential Leases
Commercial/Industrial Lease Components
Commercial and industrial leases differ from residential leases in several key respects. Understanding these differences will help you protect your interests and negotiate the best possible lease terms.
Commercial and industrial lease rates are typically quoted in terms of annual rent per square foot. A 500 square-foot studio at $15 per square foot translates to an annual rent of $7,500, or $625 per month.
Find out whether the rent covers a gross or net lease. As mentioned previously, under a gross lease you are only responsible for your rent. Under a net lease, however, you will be responsible for your rent plus additional operating expenses -- for examples, utilities, real estate taxes, insurance expenses and CAM. These charges may be referred to in your lease as "TMI" (taxes, maintenance and insurance), or "additional charges."
Discuss potential additional charges with your landlord. Also, ensure the lease accurately spells out which expenses will be your responsibility, and which expenses your landlord will pay. In a net lease, these costs typically fluctuate on a monthly basis.
Ask the landlord for estimates (usually determined through back statements and bills) of the costs, in order to more accurately determine your total monthly financial commitment and responsibilities.
When reviewing properties, pay attention to how the landlord calculated square footage. Landlords sometimes include the thickness of the walls (interior and exterior) in the final calculation.
For example, a warehouse advertised as 3000 square feet might have dimensions of 75 x 40 ft. To calculate the space, the landlord includes the six-inch thick exterior walls, which reduces the usable interior space to 74 x 39 ft or 2,886 square feet. If the cost per square foot was set at $5.50 on an annual basis for this space, you would pay an additional $627 annually for space you cannot use (i.e. the walls).
Using the warehouse example again, say the space was already divided into three studios separated by two six-inch walls, each with its own doorway. The 74 x 39 ft space has now been reduced by an additional 12 inches of wall thickness (6 inches x 2 walls) to 73 ft. x 39 ft. This reduced square footage (down to 2,847 sq. ft) translates into a cost of approximately $841.50 annually for the non-usable space.
Discuss with the landlord how s/he has measured the space, and then take your own measurements.
The landlord recoups the cost of maintaining corridors, restrooms, elevators, and other common areas through the common area maintenance charge (CAM). The CAM is calculated through either a loss or load factor. In the loss factor, tenants pay for more space than they actually get. In the load factor, tenants get the number of square feet advertised, but the space is more expensive.
For example, you rent a 750 square-foot studio space advertised at $10 per square foot. Under a loss factor, you might end up with only 700 square feet of usable space, with the additional 50 feet allocated as part of the common areas. Under a load factor, your usable space would be 750 square feet, but you would pay a higher rent to cover the 50 additional square feet of common area.
Say the 50 square feet of common space represents 15% of the overall common space. To cover this cost, you could expect the rent for the same space in a load scenario to be 15% higher, or more than if the cost had been based on a loss factor.
Normally, the square footage and cost per square foot advertised by landlords includes the loss or load factor. Every building has a different factor, depending upon design and layout and which method the landlord applies. The wider the corridors, and the larger the lobbies, the greater the impact the loss or load factor will have on your lease rate.
Ask your real estate professional or the landlord how the space is being measured, and the exact size of the offered space. Also, measure the actual space yourself.
TIP: Square footage can include the rented space plus a portion of the common area. Ask how much usable square footage you will be getting, and how much space you will be paying for.
TIP: For more information on commercial and industrial leasing, visit www. Nolo.com .
The length of the lease term should reflect your current needs and future plans. Try to predict your space needs one, three and five years from now, and look for a lease that gives you flexibility to move, expand or reduce your space accordingly.
Your needs today might be drastically different tomorrow. For that reason, pay careful attention to lease clauses that relate to your right to sublet or assign your lease. Industrial and commercial leases are for multi-year terms. If you find the perfect space, you might want a long lease to provide you with stability and security. A long lease term has other benefits, especially in a hot market. For examples:
- You know what your rent will be for the next few years, and can plan accordingly.
- It will protect you from market rent increases. When negotiating the lease, ask for caps on automatic rental increases during the lease lifespan. Under a net lease, however, you are still subject to increases in the additional monthly charges to cover rising CAM costs, property taxes and insurance.
- It will permit you to spread out renovation costs over several years. For example: The landlord makes $5,000 in improvements before your move-in. Under a one-year lease, s/he might expect the full $5,000 before the end of the lease, costing about $416 extra per month. Under a five-year lease, this cost could be stretched out over the five-year term, or approximately $83 in additional charges per month.
- In an unstable market, rent might be lower than for a shorter lease term, as the landlord will want the assurance of steady income.
Realistically, your long-term lease security is dependent upon the landlord's financial stability and interest in retaining ownership of the building. If you hope to stay in a location for a considerable length of time, find out what the landlord's long-term interest is in the property, and if s/he wants to sell.
In the event of a sale, lease terms transfer to the new owner and are up for renegotiation at the end of the lease -- as long as the property does not go into foreclosure. However, if the building is sold due to foreclosure or condemnation, the lease terms can be forfeited depending on when you started the lease. You will find more information on evictions and lease terminations later in this section.
Although a long lease can provide stability and predictability, a shorter lease gives you flexibility should your space needs change drastically, or if the space doesn't work for you. When signing a shorter lease, include a renewal clause; try to negotiate these terms.
One solution: Negotiate for a short-term initial lease with a renewal option for a longer time period. For example, you can sign a lease for 1-2 years initially, with an option to renew the lease for an additional 3-4 years. The downside to this strategy is that the landlord might want a higher rent for the shorter lease. Also, you run the risk of a rent increase on the new contract if you haven't negotiated the rent for the renewal term.
Various time frames for assuming responsibility of a commercial space can apply. If you are moving into a simple studio space, you might be able to walk in and set up shop immediately, with very few obstacles. However, if you are setting up a space that requires build-outs such as erecting walls, computer connectivity, ADA compliance or other additional space features, then you do not want to be responsible for the space on the same day that you sign the lease.
Key dates of the lease include:
- When can you officially move in?
- When must your insurance coverage start?
- When can your designer or contractor begin working in the space?
- When will the landlord's contractor begin working?
- When must your business/organization open for business?
- Will there be rent abatement (full or partial) during the build-out period, if you -- not the landlord -- are paying for the work?
- Will the landlord provide some type of abatement if s/he is paying for the build-out work?
Beware of date clauses that begin with "As of this date." This vague statement can make you immediately responsible for a space that you may be weeks or months away from actually inhabiting. A date set by this phrase becomes especially troublesome when it is the only date in the contract. The phrase "takes possession of" also needs to clearly identify which rights you have on that particular day.
Make sure the lease defines when start dates take effect, and the remedies and consequences that result from missed deadlines.
Repairs and Maintenance
Commercial leases often impose repair costs on tenants. When viewing a building for the first time, pay attention to its condition and the state of repairs.
If you sense that the property is poorly maintained, ask other tenants about maintenance. You can also ask the City of Seattle Department of Planning and Development(DPD) about code violations.. A landlord who hesitates in answering questions might be hiding serious problems with his/her space.
A certified building inspector who specializes in commercial or industrial spaces can provide valuable insight into the condition of the property. In Washington State there is not a specific license for commercial property inspectors, so make sure the inspector you choose has experience with the type of property you are having inspected. For more information and tips about building inspection, see Chapter 4: Professional Services and Chapter 17: Inspections.
Most leases include terms for rent increases. If your annual rent increases are based upon market rates, or a publicly available index (indicators and formulas used in the financial market), try to negotiate for a cap on the amount of each increase, or try to delay the initial increase for as long as possible.
Develop a fair understanding of market rents in the community where you want to lease. This will put you in a better position to negotiate lease rates and other terms. A real estate agent can be very helpful in this regard.
In Washington State leases must stipulate if the tenant must pay an additional fee if rent is late. Make sure your lease includes a "grace period" allowing for a specific number of days before a late fee applies, otherwise, according to Washington State law, your landlord is not required to allow for a grace period and your rent is due on the date specified in the lease. In addition, make sure your lease includes procedures to address how you will be charged and penalized, if it is fines and procedures are not specified in the lease the landlord is not legally able to impose fines for late payment.
Key Lease Clauses
All clauses in commercial and industrial leases are negotiable whether you have a gross or net lease. Understanding these clauses and how they affect your financial commitment to the space will help you protect your interests and negotiate the best possible terms.
If you are leasing commercial or industrial space, the landlord will typically prepare the lease and present it to you for approval and signature. Most landlords use a standard-form commercial lease, which includes a number of benchmark clauses in addition to stipulations specific to the building and unit.
The lease will outline:
- Your obligations as a tenant
- Your rent and additional charges
- Rent Due Date including grace periods as well as fines and procedures for late rent.
- Responsibilities for maintenance and repairs
- Subleasing and assignment rights
- Permitted and prohibited uses
- The landlord's right to terminate the lease
- Your rights to terminate the lease.
Typically, the lease is prepared by the landlord's lawyer, and will often favor the landlord. Read the lease carefully, and question any hazy or ambiguous sections. You are entitled to request changes, deletions and additions before you sign.
Also, have a real estate attorney or your real estate agent assist in negotiating the terms of the lease from the very beginning, especially if you are entering into a long-term or expensive lease. Seek assistance in signing a net lease to ensure that agreements made between you and the landlord are clarified.
If you are unable to pay an attorney's fee, some nonprofit organizations have reduced cost and/or free legal services. See Chapter 4: Professional Services for information.
The remainder of this section is devoted to discussing the key clauses to look for in a commercial or industrial lease.
Unlike residential leases, under which landlords must return security deposits within 30 days of the tenant's vacating the premises (as detailed in the Seattle Landlord-Tenant Ordinance), there are no defined legal time limits for the return of a security deposit in a commercial or industrial lease. Security deposits can be any amount agreed upon by you and the landlord. Therefore, stipulate the exact amount of time post-expiration or termination of the lease that the landlord has to return your deposit.
The landlord may withhold part of the security deposit to cover unpaid rent, reasonable costs to repair damage caused by the tenant, or interest. Specify the conditions under which the landlord can keep the deposit or apply it towards unpaid rent.
Commercial tenant usually must maintain a certain amount of funds in deposit throughout the tenure of the lease. If the landlord uses your deposit money to cover unpaid rent, you will have to replenish the funds within a specified period of time after its use.
Limit what the landlord can do with your deposited funds. Insist on the inclusion of language that requires the landlord to notify you, and provide a specified and reasonable amount of time to respond if s/he attempts to apply the deposit to back rents or other costs (CAM, property taxes, etc.).
Your landlord may also apply the deposit against move-out damages, maintenance or other operating costs you have created. In the lease, require the landlord to provide a detailed list of which charges were deducted, and always maintain your right to challenge the deductions.
When negotiating utilities ensure that your lease details exactly how you will be charged. If you must pay utilities, make sure that your meters for electric, gas and water are separate from those of other tenants so that you pay exactly for what you use.
Typically, utilities that are not separately metered will be divided by percentage of space. For example, if you rent 10% of the space, you might be expected to pay 10% of the utility bills. This can become problematic if you do not use particular services as much as other tenants do.
You might have to directly pay a portion of the insurance, especially if you have a net lease. Review a copy of the landlord's insurance policy to adjust your own as necessary. Issues to consider:
- Does the landlord's policy cover your use of the space and activities?
- What are the limits to the amount of insurance carried by the landlord?
- Will you be notified if the landlord's policy lapses?
- Does the landlord's policy cover other properties as well? If so, does this affect how claims are made?
- Are there caps on the number of incidents that will be paid each year by the landlord's insurance provider? If so, how does this affect your space if the policy has reached its yearly maximum and an incident occurs? Who pays?
As with utilities, insurance charges may be based on the percentage of your space, or the landlord might use another method to divide insurance costs among tenants. This is fine if the entire establishment is rented by similarly-sized spaces or uses, such as all one-person studios. However, this can become problematic if leased spaces vary widely in size and use.
For example, what if your studio is in a mixed-use building in which the first floor contains two galleries, an arts gift shop and a restaurant, while the top two floors consist of artist live/work spaces? Although the top floors have little contact with the public, the foot traffic created by the restaurant and gift shop increases the liability insurance of the overall building. While these businesses are generally required to carry additional insurance to cover their activities, your rent could be impacted.
In a net lease, costs could be passed on to you directly by high insurance fees or -- if you have a gross lease -- higher rents. Again, negotiate for other cost-reducing clauses to ensure you don't overpay for use of your space. For more information about insurance issues, see Chapter 19: Insurance
Common Area Maintenance Charges (CAM) covers maintenance of elevators, lobbies, restrooms and other shared spaces. Make sure the lease states how these charges will be determined and allocated.
In a net lease, CAM charges are payable directly by the tenant as additional rent. If possible, try to get a very specific list of charges you can expect, and include lease language that either caps these costs or requires notification when they increase dramatically.
Tenants under a net lease are probably expected to pay a portion of the taxes along with rent. As with utilities and insurance, ensure that your portion of the tax bill is reflective of your space size. See Chapter 15: Property Taxes for more information on property tax issues for commercial tenants.
If the landlord agreed to complete improvements before you moved in, have a list of these improvements, and dates of completion, noted in the lease or included as an attachment. Also make sure that guidelines for dealing with delays are addressed.
The landlord might argue that refurbishing the front entrance or other remodeling efforts contribute to the overall appeal of the building and benefit all tenants. Include a lease clause prohibiting the landlord from remodeling the building at the tenant's expense, and limiting your responsibility for rehabbing.
Use and Repairs
This clause describes how you can legally use the premises. While adhering to the zoning laws is essential, make sure your landlord understands and agrees to your use of the space. Failure to use the space in the manner set forth in the lease may result in an eviction or lease termination. Ensure that the lease clearly explains who is in charge of identifying and taking care of needed repairs.
Defaults and Remedies
This section of the lease is one of the most important, as it covers what happens when either you or the landlord breaches. Build into the lease a system of checks and balances and guidelines that provide you ample time to resolve issues with the landlord, guide you in handling potential disputes, and settle the issue without legal action.
- The use of notices when one party fails to meet lease obligations;
- Specific amounts of time to cure lease defaults;
- What happens if you make a repair for which the landlord was responsible; and
- What happens if you fail to pay your rent.
Dispute Resolutions and Legal Fees
Unfortunately, disputes may arise between you and your landlord that cannot be settled amicably. Your lease should provide procedures for resolving these conflicts, and might contain language stating that both parties must accept mediation or arbitration as a first step before heading to court.
The primary concern of dispute-resolution clauses is ensuring that both parties participate in selecting the arbitrator. You will also find an Attorneys' Fees clause, which basically covers who will pay legal costs and expenses if the dispute leads to a lawsuit. Beware of clauses obligating the tenant to pay the landlord's legal costs.
If you are renting the space with friends or colleagues, make sure that everyone's name is on the lease, and that all have signed. Each person who has signed will individually be responsible for the space, payment of rent and other obligations. Do not accept responsibility for others unless you have the ability and intention to cover their portion of the rent should they move out or fail to pay.
When signing a lease with others, also make sure that the lease covers in detail how the landlord will respond if someone is unable to pay their portion of the rent. Include language that outlines the penalties and cure period for making the payment before the landlord begins the eviction process. For more information on dealing with disputes, see Chapter 24: When Disputes Arise.
Subletting and Assignments
Two common ways to end a lease are subletting and assignments. In both cases, your landlord usually will insist on maintaining the right to certify that prospective tenants meet income minimums and other specific requirements.
Sublets allow you to rent all or part of your space to another person or organization. You act as the landlord to the new "subtenant." However,
subleasing does not release you from the legal and financial obligations of the original lease. You remain ultimately responsible under the original
lease until it either ends or is terminated.
Assignments allow you to relinquish the lease and all the responsibilities of the contract to another party. The primary concerns:
- Ensure you have a subletting and assignment clause in your lease; and
- Make sure your landlord does not have arbitrary power to decline potential candidates.
Ensure that the assignment clause also includes language releasing you from financial and legal responsibility once you assign the lease.
Include lease language that stipulates what happens in the event you remain in the space beyond the expiration of the term. Will your lease automatically be renewed? Will the landlord allow you to go on a month-to-month lease?
Many landlords require you to pay increased rent if you hold over your tenancy. Because you cannot predict what your needs will be at the end of your lease, it is wise to negotiate the terms of a holdover at the beginning of the lease.
Many leases will include language that financially compensates the landlord for any costs s/he incurs due to your holdover. For example, if you holdover two additional weeks, and the landlord's new tenants sues him or her for not being able to take over the space immediately, the landlord might try to get reimbursement from you.
When negotiating the holdover clause, try to limit the landlord's compensation for your holdover to a per-day amount based upon the rent at the time of the expiration of the term.
TIP: Never sign the lease until you have taken time to read it carefully. Ask questions and request changes, deletions and additions before you sign.
Negotiating a Lease
Once the landlord has presented you with a draft lease, let the negotiations begin. Take it home, read it, ask questions, and request changes, deletions or additions before you sign. Only after reviewing the lease in its entirety will you know what you are being asked to agree to and what amendments you might want to make. Never sign unless you have read and understand the full lease.
As mentioned previously, the law considers landlords and tenants engaged in a commercial or industrial lease as business equals. This means you have fewer legal protections compared to a residential leasee.
List priorities and terms on which you are flexible in order to get the best possible deal. Each clause has an associated value, and some will be more valuable to you than others. If you want a gross lease because you need to know your monthly expenses in advance, and the landlord is willing to give you one, be prepared to make concessions in other areas. Paying a higher rent or signing a longer lease are points you can use as leverage during negotiations.
Your real estate agent or attorney will be very helpful in the negotiation process. If you have undertaken a thorough search and know market values, you will recognize a fair deal.
Unfortunately, not all lease negotiations work out. If you cannot reach an agreement within your budget, or with clauses that meet your needs, you must be prepared to walk away from the space. Have an alternative, back-up space; this will give you more confidence during your negotiations.
The following links provide samples of commercial or industrial leases (these links are for educational purposes only and are not legal advice ):
Pay attention to the organization and language of these leases to get a better idea of what to expect when assessing your commercial or industrial lease.
If possible, ask a real estate attorney to assist with negotiations of the lease terms. If money is an object, try to have an attorney review the lease before you sign. Many nonprofit organizations have reduced cost and/or free legal services. See the Resource section of Chapter 4: Professional Services for more information.
This section discusses key questions to ask your potential landlord when reviewing a space and draft lease. Ensure that the landlord's answers to your questions are consistent with what is written in the lease. Consider asking your attorney or real estate agent to assist you in negotiations.
- Allowed uses: If the landlord doesn't want sound to disturb other tenants, and you are a pianist, consider whether the space is appropriate for your use. Likewise, if you are considering living in the space and the landlord specifies no residential use, keep on looking.
- Who is obligated to maintain the premises and repair any damage? If you are responsible, an inspection may be warranted, especially for a considerably long or expensive lease. You don't want to be responsible for any damage caused prior to your tenancy.
- Financial questions to ask:
- What is the rent?
- Is this a gross or net figure?
- Who is responsible for property taxes, utilities and other charges? If it is the tenant, what are the additional charges above and beyond the rent?
- If this is a net lease, what are the property taxes in the area?
- What portion of the common areas are you paying for, and what activities are allowed/prohibited?
- During which hours will utilities and services be provided? Many commercial leases specify that electricity, heat, water and elevator service will be provided during business hours only. You may need these services 24 hours a day, seven days a week. Make sure if you are working during these "off" hours that needed services are available.
- For how many years is the landlord willing to rent the premises? Usually, the longer the lease, the greater your stability. In addition, longer leases may provide you with more leverage in negotiations.
- What will rent increases in each year of the lease be? Will there also be increases in the additional charges (CAM, property taxes, insurance, etc.)?
- How will additional charges (CAM, property taxes, insurance, etc.) be divided between tenants?
- Will the landlord grant the option to renew when the term expires? This option is advantageous and should be included in the lease. If possible, negotiate a price cap on the renewal lease's rent -- for example, the rent does not increase more than 10% if you renew by a specific date.
- Are you allowed to sublet or assign the lease to another party?
- If you sublet your space to another party, you are still responsible to the landlord for rent and all other charges should your tenant leave without
In an assignment, you transfer your rights and obligations under the lease to a new tenant and are released from these responsibilities - legally and financially. The lease should give you the right to do either of the above, and deny the landlord the arbitrary power to withhold consent for a replacement tenant
- What other options are open to you should you need to terminate the lease and are not interested in subleasing or assigning the space? You might want to include a clause that stipulates that, with a certain number of days' notice and possibly a termination payment, you will be allowed to end the lease. Make sure any agreement you make is clearly described in the lease.
- If you are leasing the space as a business or nonprofit, does the landlord expect you to guarantee the lease personally? If you co-sign individually for the lease, you become personally and financially responsible for it if the business or organization doesn't fulfill its obligations. Although this can be risky, this practice is not uncommon, especially for start-up businesses and new nonprofits.
TIP: Always negotiate the rent. The landlord expects you to, and not doing so could result in you paying more for the space than necessary.
Alternative Lease Arrangements
A month-to-month tenancy may occur when no written lease agreement exists between the tenant and the landlord; when a lease has expired without a written agreement extending the term; or when the lease specifically provides for a month-to-month term. The tenant may legally occupy the premises for the month in which rent has been paid. This arrangement continues until either the landlord gives the tenant notice that s/he must vacate the premises, or until the tenant gives the landlord notice of their election to end the tenancy. In either case, a 30-day notice must be given.
To sublease a space from another party you MUST get a copy of the original lease, which will detail the terms of the tenancy. As mentioned earlier in this section, in a sublease arrangement you pay the original tenant, who then pays the landlord.
For your protection, negotiate and sign a written sublease between you and the original tenant. As with any other lease, the sublease should clearly state the length of your tenancy, amount of rent and expenses you must pay, and the remedies available in the event of a breach by either party.
Most leases include a clause that gives the landlord the right to approve any subtenants. Therefore, when subleasing space, eliminate potential problems with the primary landlord by getting a letter or other written document from the landlord approving your sublease of the space.
This might seem unnecessary if you are renting from a friend or colleague, but it protects both your interests should a problem arise with the lease or the landlord. A sublease does not release the original tenant from his or her obligations under the original lease, nor does it provide you extensive protection should issues between the original tenant and the landlord lead to an eviction or lease termination.
An assignment takes place when an existing landlord or tenant assigns their lease to another party. If you are the assignee, you assume full responsibility of the original tenant's interest in the lease and thereby agree to all the terms and conditions.
Read the lease carefully before agreeing to an assignment, as usually you cannot renegotiate its terms and conditions. Be aware that an assignment of a lease must be approved in writing by all parties involved: you, the original tenant and the landlord. From the effective date of the assignment, you will be legally and financially liable for all obligations outlined in the lease.
In a standard commercial lease, the landlord is obligated to grant you exclusive possession and quiet enjoyment of the premises, as well as provide heat, water and any other services agreed to in the lease. If the landlord fails to fulfill any of these obligations, do not under any circumstances withhold rent. Doing so will provide the landlord with grounds to evict you.
If your landlord fails to meet any of his or her lease obligations, your first course of action should be to speak to them. Try to reach an agreement. If you have a good relationship with the landlord, s/he may be receptive to your concerns and work with you.
After you have spoken to the landlord and an agreement is reached, put it in writing, send a copy to the landlord for signature and keep a copy for your records. If you are unable to speak to the landlord directly, write down your concerns (and possible solutions) and mail them to the landlord. If possible, send the letter certified mail and/or request a signature. Always keep a signed and dated copy of all correspondence in your files. You can also try sending an email to your landlord and copying the message to yourself.
Another option is to have your documents notarized (a.k.a. notary public.) Notaries are legally authorized to witness a signature and certify a document's validity. They are often available free of charge at banks or may charge as little as $1 per document.
Check your lease for a provision on handling disputes with your landlord, and follow its course of action. When drafting the lease, set standards for mediation. For example, require that both parties agree to use a specific mediator, or that mediation occur before any legal action can be taken.
Mediation can be effective if the landlord interferes with your use of the premises, or refuses to take action against another tenant who is interfering with your use. See Chapter 24: When Disputes Arise
If your dispute escalates, your final recourse is to seek legal assistance. An attorney can advise you on the best course of action, costs, and possible outcomes. If necessary, you can go to court to coerce the landlord to fulfill his or her obligations. For more information on hiring an attorney, review Chapter 4: Professional Services.
Know Your Landlord and Building Staff
Whether you are leasing a workspace or a live/work space, know your landlord. Ask other tenants about their experiences with the landlord, or obtain a profile from a real estate agent. If the landlord occupies a portion of the building, you can be somewhat confident that problems will be dealt with quickly and effectively, and that the building will be adequately maintained.
Locate information about potential landlords and management companies by contacting:
- The King County Superior Court - Check for lawsuits filed against the landlord, building owner, or management company.
- The Seattle Branch of the Better Business Bureau (BBB), which compiles data and complaints on business owners across the U.S. and Canada. With nearly 2 million Reliability Reports, which highlight a company's service record, the Seattle BBB may be able to provide information about the track record of building owners and landlords (residential and commercial). For more information
The local chambers of commerce and other community development organizations may also know which building owners are problematic. See the Community Profiles section of Chapter 14: Seattle's Neighborhoods for area-specific chambers of commerce and community development organizations.
A variety of individuals and companies will likely maintain the premises. Get to know your property management company, building superintendent manager and maintenance and cleaning staff so that you know exactly where to turn in the case of problems.
Maintaining a good relationship with your landlord may also mean your problems get resolved more quickly. A good relationship will help when it is time to renegotiate your lease. If you have been a cooperative and responsible tenant, the landlord will want you to stay on to save the marketing costs of releasing the space and potential lost revenue if the space sits vacant.
If you and other tenants of your building are experiencing a common problem, you will strengthen your voice by approaching the landlord as a united group. A landlord who has ignored complaints expressed by one tenant is likely to start paying attention when multiple tenants voice their concerns and present solutions.
Organizing a group of tenants takes hard work, but collective action might be the only way to remedy certain problems. If you decide to go this route, review the legal resources in Chapter 4: Professional Services, and the mediation services in Chapter 24: When Dispute Arise.
In addition, many nonprofit legal organizations might be able to assist you or at least provide direction. Again, see the resource section of Chapter 4: Professional Services for more information
Eviction or Lease Termination
By signing a lease, landlord and tenant each agree to a number of responsibilities and obligations. Failure to meet them will entitle the landlord to enforce certain penalties. This section discusses common causes for eviction and lease termination for commercial and industrial leases. (The information contained here is not a substitute for legal advice.)
Because commercial and industrial leases can be very complicated, there are often many points of contention that can lead to the eviction of the tenant or termination of the lease. Contact your attorney immediately if you are served with an eviction notice.
In the eyes of the law, landlords and tenants in commercial lease arrangements are viewed as business equals. As such, commercial and industrial tenants have fewer protections under the law than residential tenants.
Regardless of the grounds for eviction or termination of the lease, the first step in a legal eviction is for the landlord to serve the tenant with written notice stating that s/he is commencing eviction proceedings. The requirements for proper service differ based on whether you are leasing property as a business or as an individual. Service on an individual can be accomplished by personally delivering notice to the person. Statutes describe who may receive notice on behalf of a corporation, limited liability company or partnership. Under certain circumstances, service may be by mail or notice. You must ask an attorney to be certain whether service of notice was sufficient in your individual case.You can be evicted for three primary reasons:
- Failure to Pay Rent
- Breach of Lease Terms
- Foreclosure, Damage or Condemnation of Property
Failure to Pay Rent
Unless the lease specifically states otherwise, a tenant has the entire day on which the rent is due to make payment of the rent, as well as any lease-negotiated grace period. If you know in advance of the due date that you are unable to pay your rent on time, contact your landlord immediately.
You may be able to avoid a breach of the lease if the landlord allows you to pay by a mutually agreed-upon date after the due date. Your landlord might be reasonable about a short delay as long as you are open with him/her from the beginning.
However, keep in mind that the landlord is under no legal obligation to wait before s/he takes action against you, unless the lease provides for set procedures and cure times when you are late with the rent. If your landlord chooses not to continue the lease, then s/he must file a complaint against you in court and seek to have the court issue an order declaring that your lease and occupancy of the space are terminated.
Breach of the Lease
A commercial lease is like any other legally binding contract. Failure to follow the stipulations can be considered a violation or breach. Most leases outline actions the non-breaching party may take when breach has occurred.
Examples of breach include the tenant's failure to use the premises in the manner outlined in the lease, failure to pay common area maintenance charges (net leases), and failure to maintain the level of insurance the lease requires.
Foreclosure, Sale, Damage or Condemnation
Your lease might contain several clauses that affect your rights to the building. These issues are often addressed under Foreclosure, Sale and Damage or Condemnation of Building clauses, and are designed to protect the landlord's interest.
These clauses stipulate that your rights as a tenant are subordinate to the rights of other persons and/or organizations with an interest in the property, such as a mortgage lender. This clause might also demand that the landlord has the right to assign your lease to a new owner in the event the building is sold. Your rights under the lease can also be terminated if the building is condemned, heavily damaged (fire, natural disaster, etc.) or foreclosed.
These are general, standard provisions of commercial and industrial leases, and it is difficult to get landlords to remove or modify them. However, if you have a long-term lease for a major portion of the building, you might want to negotiate for a share of any condemnation award on the theory that you will suffer substantial monetary loss if such a situation arises.
A condemnation award might include insurance money if the building is damaged, or money from a sale, if the property is sold due to an eminent domain purchase. An eminent domain sale occurs when the government (local, state or federal) seizes private property for public use such as a library, highway, new school, etc. In these situations, the government buys the land and/or building from the owner at market value.
If You Face Eviction
If the court upholds an eviction and you are forced to move, keep in mind that your landlord cannot remove your belongings from the property. However, if you are not fully moved out of the space by the close of business on the required date, the landlord can have your personal property removed.
Only a King County Sheriff can physically remove your belongings from the premises. If the landlord attempts to personally remove your belongings, even if it is beyond the move-out date, call the police immediately.