Commercial Leases
Commercial tenants do not get the protections residential tenants get. Whatever the lease says is very close to the whole of the deal.
Michigan regulates residential tenancies heavily. Commercial tenancies it largely leaves to the parties, on the theory that businesses negotiating with businesses can look after themselves. The practical result is that a commercial lease is one of the few documents where a party can genuinely sign away almost anything, including rights they assumed were not waivable.
These leases also run long. A five or ten year term with renewal options is a multi hundred thousand dollar commitment for a small business, and it is frequently signed with less review than the business would give a vehicle purchase. The firm negotiates and drafts these for landlords and tenants, and litigates them when they break down.
The terms that carry the money
| Term | What is actually at stake |
|---|---|
| Rent structure | Whether the lease is gross, net or triple net decides who absorbs taxes, insurance and maintenance. The quoted rate per square foot is not the cost. |
| Common area charges | How they are calculated, whether they are capped, and whether the tenant can audit them. Uncapped and unaudited is where budgets fail. |
| Maintenance and repair | Roof, structure, parking lot and HVAC are the expensive items. A clause assigning HVAC replacement to a tenant can exceed a year of rent. |
| Personal guaranty | Puts the owner's personal assets behind the entity. Whether it can be limited, capped or burned off over time is negotiable and often is not raised. |
| Assignment and subletting | Determines whether the business can ever be sold. A lease that cannot be assigned can make the business itself unsellable. |
| Use and exclusivity | What the tenant may operate as, and whether the landlord may lease to a direct competitor next door. |
| Renewal and escalation | Whether options exist, how notice is given, and how rent moves. Missing a renewal notice deadline has ended businesses. |
| Default and remedies | Cure periods, acceleration of remaining rent, and whether the landlord must mitigate. This is what a dispute is fought over. |
| Holdover | What happens if the tenant stays past the term. Penalty rents of one and a half to two times are common and enforceable. |
If the entity fails, the guaranty does not fail with it. An owner who signed one can be pursued personally for the remaining term after the business has closed. It is the single provision most worth negotiating and the one most often signed without discussion.
When a commercial tenancy breaks down
- Nonpayment, and whether the landlord may accelerate the balance of the term
- Disputes over common area charges, reconciliations and audit rights
- Repair obligations, particularly roof, structure and mechanical systems
- Claims that the premises cannot be used for the permitted purpose
- Exclusivity breaches where a competing tenant is admitted
- Assignment refused on a business sale, or consent unreasonably withheld
- Holdover after expiration, and the rent that applies during it
- Security deposit and restoration disputes at the end of the term
- Enforcement against a guarantor after the tenant entity has failed
How these matters run
- The lease and every amendmentIncluding side letters, work letters, estoppels and guaranties. These documents are long and the operative language is rarely where people expect it.
- Obligation mappedWhat each side actually owes under the document, as distinct from what each side believes was agreed in conversation.
- Notice and cureMost commercial leases require specific written notice and a cure period before any remedy. Skipping it defeats the remedy.
- Negotiation or proceedingsMany resolve through a negotiated amendment or termination. Where they do not, possession and money claims proceed in the appropriate court.
Questions about commercial leases
The landlord gave me their standard lease. Is it negotiable?
Almost always, and considerably more than tenants assume. Landlord forms are drafted to open at the landlord's best case. Guaranty scope, cure periods, common area caps, assignment rights and maintenance allocation are all routinely negotiated. Whether you have leverage depends on the market and the space, but the answer is rarely no.
My tenant stopped paying. How fast can I get possession?
Commercial nonpayment moves faster than residential, but the lease usually requires written notice and a cure period first, and that has to be done correctly. Whether you can also accelerate the remaining rent depends on the default provision. Doing this in the wrong order is the main cause of delay.
Can I get out of a lease early?
Sometimes, through negotiated termination, assignment, subletting, or an argument based on the landlord's own breach. It depends on the document and on the landlord's practical position, including whether the space can be relet. It is a negotiation, and it goes better before you stop paying rather than after.
I signed a personal guaranty and the business is closing. What happens?
The landlord can generally pursue you personally for what the lease provides. There may be defenses, limits on the guaranty's scope, or an argument about the landlord's duty to mitigate by reletting. This should be addressed before the business winds down, not after.
A commercial lease is negotiable until you sign it.
[PHONE]Matters with a closing date, a filing deadline or a hearing already on the calendar are handled by phone.