Legal Provisions to Consider Before You Sign a Commercial Lease Agreement in Pennsylvania
If Pennsylvania sounds like an excellent location for your business; if you have identified an excellent location that fits your unique business needs, is easily accessible, is zoned for your kind of business, and gives you access to clients and human resource pools, then it’s time to get a commercial lease. However, you shouldn’t sign a Pennsylvania commercial lease agreement blindly. With a lawyer, review all the terms of that lease, negotiate the terms that feel unfavorable, go through all the hidden clauses, and only sign it when you are satisfied it’s the best for your business.
To ensure that we are on the same page, know that a commercial lease agreement in Pennsylvania is a legally binding contract drawn between a lessor (landlord) of commercial property and a lessee (tenant). This contract gives the lessee the right to use the property. It also outlines the responsibilities of both parties.
Unlike the residential leases, the commercial leases are not protected by the consumer protection laws because the state assumes that the parties to a commercial real estate lease agreement are a lot more knowledgeable than renters in residential property. Also, the lease agreement forms signed differ with the commercial lease form carrying many terms and clauses than the residential lease form.
Essential elements of the business lease agreement
The amount of rent and future increases
Often, a tenant pays the base rent and some or all of the property expenses. Before signing the lease, make sure you understand what you are paying for. The rent payment may be categorized as gross (Base rent only); Net (base rent, and property taxes, insurance, and common area maintenance/ CAM); or modified Gross where the tenant pays the base rent and a portion of the property expenses.
The rent payment clause will also include the provisions for escalations costs because all commercial leases feature an annual percentage or an indexed value that forms the basis for a rent increase to cater for inflation costs. Note the rent increase percentage and negotiate the cap.
The term of the lease
The lease can be fixed term or periodic. A fixed term lease has a predetermined end date while the periodic lease doesn’t. With a fixed term lease, neither party has to issue a lease termination notice because the lease terminates naturally, and the terms of the lease may change or not depending on the presence or absence of a clause allowing the change.
In the periodic lease, either party gets to issue a lease termination notice within the statutory time limits. The lease is renewable, and the changes to the lease discussed when signing the lease.
Other Weighty Clauses
Compliance with the ADA laws.
Landlords and tenants are required to make their commercial properties safe and accessible to persons with disabilities. So, the lease should include the details of the party responsible for the making changes to the space for compliance.
Confession of judgment
A Pennsylvania commercial lease agreement will have a provision for the confession of judgment which will be used should the tenant default payments. The confession of judgment may be for monetary damages or the possession of the premises.
When a tenant agrees to sign a commercial real estate lease agreement with a confession of judgment, it means they agree that should anything happen, say defaulting rent and the tenant’s subsequent refusal to surrender the property, the landlord will be obligated to obtain a judgment against the tenant for damages. Except in very limited circumstances, the landlord will have the power not to notify the tenant of their actions, and the tenant will not have any rights to dispute the judgment. While most landlords keep the confession of judgment clause for possession, others will scrap it for monetary damages. So, if you are signing up for this, you need to negotiate for an extra notice and cure period before the landlord avails themselves to act on this remedy.
Interest on the Security Deposit
Note that unless it is stated otherwise, you will not receive interest earned on the security deposit when it comes to the business lease agreements.
Landlord’s Duty to Mitigate
As you negotiate for favorable terms in the lease, make sure you include a clause that requires the landlord to use commercially reasonable efforts to mitigate damages in the event of defaulted payment. This is important because, under the state laws, the landlord has no duty to mitigate damages unless it’s provided for in the lease.
A form of Memorandum of Lease
There is a need for a memorandum of the lease; for example, when the tenant has the option to expand the property, option or right to purchase. The memorandum only prepared after the approval of the landlord should terminate when the lease terminates.
Local governments such as the ones in Philadelphia impose an occupancy tax on commercial rent. And in these cases, the tenants are expected and required to pay the occupancy tax ordinance, with the landlords expected the use and occupancy tax ordinances. The landlord is expected to notify the tenants of the amount of tax due;
make a written demand for payment of the tax, and to complete the tax return forms then remit the total tax before the due date. The landlord is not, however, responsible for unremitted occupancy tax, as long as they comply with and fulfill their duties.
The other essential elements of the lease include the conditions for subleasing and assignment, terms for relocation or lease termination, signage and advertisement, or parking.
Now that you know all that is on a stake, are you ready to prepare a commercial lease for your business? We’ll get you started with our free commercial lease agreement forms easily downloadable. You can access them from Philadelphia, Pittsburg, Harrisburg, Lancaster, Allentown, Erie, or any other city in Pennsylvania.