January 3rd, 2018, By Don Catalano
There are many different terms that commercial tenants usually think of during the office lease negotiation phase. From rentable square footage to common area maintenance to subleasing and assignments, there are undoubtedly many terms to consider. One thing that most commercial tenants forget during lease negotiations is what should happen if the unexpected happens. Very few tenants remember that natural disasters such as floods, hurricanes, tornadoes, etc can occur anytime, without warning. Even though these calamities don’t occur often, a tenant needs to be sure that he is adequately protected should they occur.
To safeguard themselves from such incidents, commercial tenants should negotiate with landlords beforehand to ensure that there won’t be disagreements and misunderstandings when the unexpected occurs. Here are the things to negotiate:
If the commercial lease states that the rent has to be paid in full throughout the lease term, a tenant can negotiate for adjustments to be made should any disaster occur and affect office occupancy for prolonged periods of time. Since the occurrence of a natural disaster is neither the tenant’s fault nor the landlord’s, they can agree to bear the loss on a 50/50 basis. This means that a tenant can negotiate to pay half the rent in the entire duration the premises can’t be occupied.
When natural disasters occur, a variety of damages are likely to occur, including broken windows, plumbing problems, electricity interruptions, HVAC damage, water and mold damage, etc. These damages can either be cheap or expensive to repair depending on the severity of the calamity. It’s important for a commercial tenant and his landlord to be on the same page regarding who will be responsible for all the repairs needed after a natural calamity.
In the event that the landlord cannot provide essential building services after the unexpected occurs, rent abatement alone may not be enough to mitigate the losses the tenants may incur. A tenant can negotiate the right to install crucial equipment such as a stand-by generator to ensure that his business’ critical operations are restored.
Once a tenant signs a commercial lease, it means that he has agreed to pay rent for the entire lease term stipulated on the lease. As a general rule, landlords expect their commercial tenants to pay rent even at those times the premises aren’t accessible due to one reason or another. This can lead to huge losses should a disaster occur and prevent a business from running for a long time. When the unexpected occurs, not only do tenants get to lose the money they pay as rent, but they also lose income as neither their employees nor their customers/clients can access the premises.
Many larger companies usually have a disaster recovery plan in place, unlike small businesses. Nevertheless, experienced tenant representatives usually bring these issues up during commercial lease review and negotiations. Therefore, their involvement in the negotiation process is invaluable.