Commercial real estate investments can be profitable, but it involves understanding complex legal nuances. One of the most critical aspects to grasp is the key legal clauses in commercial leases. These clauses can greatly impact your investment’s profitability and stability. Here are five clauses that you should include in your commercial leases.
Rent escalation clauses
Rent escalation clauses dictate how and when rent increases during the lease term. Common types include fixed increases, where rent rises by a specific amount annually, and percentage increases, which tie rent hikes to a percentage of the tenant’s sales. Understanding these clauses can help you predict your income and manage cash flow effectively.
Use and exclusivity clauses
Use clauses specify what activities a tenant can conduct on the premises. Exclusivity clauses, on the other hand, prevent the landlord from leasing space to competitors of the tenant. These clauses ensure a balanced tenant mix, which can enhance property value.
Common Area Maintenance (CAM) charges
CAM charges cover the costs of maintaining shared spaces such as lobbies, parking lots and landscaping. These charges are typically divided among tenants based on their leased space. CAM charges ensure transparency in expense allocation.
Sublease and assignment clauses
Sublease and assignment clauses govern whether a tenant can transfer lease obligations to another party. These clauses are vital for flexibility, especially if a tenant’s business needs change. You should ensure that these clauses provide enough control to approve or reject subleases or assignments to maintain property integrity.
Indemnity clauses
Indemnity clauses determine who bears the risk for certain damages or losses. A well-crafted indemnity clause can protect you from liability arising from tenant actions. It is essential to understand these clauses to reduce potential legal and financial risks.
The importance of legal guidance
These complex clauses require a thorough understanding of legal principles and their implications. Consulting with an experienced attorney can ensure that lease agreements align with your investment goals and comply with Utah’s legal standards. By understanding these key legal clauses and seeking legal guidance, you can make informed decisions that can protect your commercial real estate investments.