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Crucial Details to Consider When Negotiating a Commercial Lease Agreement in New Mexico
Unsure about what you should agree to, whether the terms of that contract will be fair, and if the lease abides by the law and the codes of the state, as well as the specifications of your business? You are in the right place. As they say, the devil is in the details. In this article, we look at all the details in the fine print of a commercial lease agreement in New Mexico.
What is a commercial lease agreement?
It refers to a written contract drawn between a lessor (landlord) and a lessee (tenant) for rental of a business property zoned for commercial use. The landlord benefits from the contract by charging rent, and the tenant uses the space for business/ profit. In most cases, the first role of the landlord is to make sure that the commercial space will be used to run a business that is acceptable by the city’s or town’s zoning department, and also, the business should be one that the landlord permits in their business property. It is also called a commercial real estate lease agreement or a business lease agreement.
Once signed, the tenant gets the right to use the property for a specific or an unspecified duration where the terms of the lease may or may not be renewable. Before signing the lease and agreeing to the elements in the commercial tenant checklist, the landlord and the tenant should first agree on the elements of the lease verbally. After negotiating favorable terms that are mutually acceptable and understood, then the parties can sign the lease.
So, what should be in the lease?
The identity of the parties
Before you lease commercial space, confirm that the party you are entering the lease agreement with has the right to lease the property. So, request the title information to confirm ownership, as well as the exact name of that title holder. Then, review the documents of the landlord, ask for a resolution to approve the lease or one that gives that party the authority to sign the lease. Here, the legal names of the landlord and the tenant should be used. If the landlord’s representative is present, they should sign the lease and indicate their position.
A New Mexico commercial lease agreement is only valid if it has the lease commencement date, the possession/ delivery date, the rent commencement date, and the tenancy termination dates. The first three dates often vary because the lessee might not start earning immediately from the business when they open their doors. Also, the tenant might want to tie their rent commencement date to the grand opening date of the shopping center or the date another client open shop.
If your commencement or termination date is unclear, then the tenant must give a declaration signed by both parties to set these dates.
Description of the premises
The description should be as specific as possible. Before signing the lease, ask for the architectural or survey drawings for the premises, and ask for any other appurtenant rights like access and the utility easements. The premises square footage should also be agreed upon and included in the lease.
In general, a business lease agreement can be signed as long as the business to be conducted is legal. But, if the business the tenant intends to run is out of the ordinary, but lawful, then the lease should have a clause with details of the business to allow for its lawful purpose.
Government approvals and compliance in New Mexico
Before your business is up and running, you will require specific approvals from the government. Request them early. The approval documents include the zoning approvals; sign permits environmental permits and the building permits.
At the same time, the building should comply with the law. The ADA requires that landlords and tenants set up their business premises in such a way that the business is accessible to persons with disabilities. While ensuring compliance and making sure that your business is set to a good start, tenants also need to make sure that their improvements to the space do not trigger or make the space non-compliant.
The rent is in a specific dollar amount, and it may be fixed or variable. Fixed rental rates apply where the type of lease chosen is the gross/ full-service lease: the tenant pays the base rent and some fixed expenses.
On the other hand, variable rent charged may be determined by the type of lease chosen: net, modified gross, or percentage.
Under the net lease, the triple net lease which is the most common type of lease. In this arrangement, the tenant pays the base rent, utilities, janitorial services, as well as the operating expenses for the business premise – property taxes, insurance, and common area maintenance (CAM). Other variations of the net lease include the single and the double net lease.
Modified gross lease: in this arrangement, the landlord and the tenant share in the cost of the operating expenses. So, other than the base rent, the tenant also pays a portion of the operating expenses to be decided among the two parties.
Percentage lease: in this case, the tenant pays the agreed base rent and a percentage of their gross earnings.
The other financial element discussed in the lease is escalations. Under the commercial lease agreement in New Mexico, it should be agreed upon whether the lessee escalation will be calculated based on a percentage or the Consumer Price Index.
When negotiating the terms of the lease, you may ask for a tenant allowance for the renovation of the space. However, the landlord may request that a percentage of the money is repaid to the landlord when the tenant moves out. Note that the landlord should approve all the plans for lease improvement.
Other negotiable details include:
Subleasing and Assignment
Signage and advertisement
Non-disturbance, subordination, and attornment.
Destruction of premises and abandonment.
Note: before the authorization of the agreement and given the significance of the investment, and the money that may be lost if due diligence is skipped, the landlord should consider running background checks on their potential tenants by asking for their tax filings for the previous year, as well as the principal’s income distribution to the company.
Would you like to get started on your commercial real estate lease agreement documents today? Download our free commercial lease agreement forms accessible online from Las Cruces, Albuquerque, Santa Fe, Farmington, Roswell, Las Vegas, Taos, Hobbs, Gallup or any other city in New Mexico.