THE DEVIL IS IN THE DETAILS
Each client has particular needs before finding that perfect place to call home for either your business or yourself. When entertaining such ideas in Bangkok or outside the city center, those feelings that the new space must meet, and target may have to be adjusted due to many outside influences. Unfortunately, the language in each lease consists of dense and, and in many cases, poorly drafted legalese. As many units in just one building may have several owners, they may also amend these legal documents with their own protections and clauses. When inspired to lease commercial property these questions loom even brighter.
To make the lease review process more efficient, I have listed some key points to consider that many of our clients have found useful when they’re thinking about leasing space for either their personal dwelling space or business. In this article, we are seeking the content that may be missing from some or all lease agreements. This is commonly due to the fact that too many people rely on copying someone else’s material (Lease Document) and not taking the time to prepare and insure that it has been done correctly. Leasing a new residential or commercial space is an event that can have major implications for anyone. From both a personal and professional standpoint, this is a major moment in how your time, efficiency, and lifestyle choices will be set including those who do business at home. If someone leases space that ultimately turns out to be unsuitable for them and all their needs, or if the business lease does not allow for expansion, the growth of the company can be unduly hindered. If too much space is leased, the company will end up wasting limited cash resources the same as for a residential buyer.
Lease documents can be sophisticated and complicated contracts. A great number of points beyond rent and square feet can directly and adversely affect a residential or business tenant down the road. Conversely, a lease that provides a tenant with the right type of space and flexibility as the tenant’s needs change can become an asset and provide a competitive advantage. A prospective tenant might want to consider the following when entering into a lease. Now these bullet points below reflect not only on a single renter, but also investors and those commercial needs when starting your own business.
The Premises. Do you know, exactly, what you are leasing? Whether it be a townhouse or commercial property, a precise plan should be attached to your lease. The exact square footage of the premises also should be set forth within the agreement. In the event that the space leased requirements are indefinite, or changes are made in the future, is there an option to expand into or a right of first refusal on said property. Also, if additional space becomes available for purchase and should then be considered, what if any protections do you have. In regard to commercial situations, what options are available as an ability to downsize and give back space or reduce the lease term. If you are leasing a substantial portion of the building, an option or right of first refusal to purchase the building may be appropriate which can also cause an ample amout of papaerwork nightmares. Storage/Parking. Your lease should identify storage space and number of parking spaces, their location, their additional cost, if any, and whether parking spaces are assigned or used in common with other tenants.
Identity of the Tenant. In commercial situations, if you operate your business in a form other than a corporation (such as a partnership or a trust), nonrecourse language should be requested. All efforts should be made to avoid entering into the lease in the name of an individual. Similarly, personal guarantees should be avoided whenever possible. When leasing personal property, you may want to know that in a year from the beginning of the lease, the landlord of the property will make significant changes which are detrimental to your overall happiness. Permitted Uses. The permitted use clause, if any, ought to be broadly drafted so as to permit all contemplated uses of the premises and incidental uses (including uses of potential subtenants). These uses should be checked against local zoning. Initial Tenant Improvements. Unless the space is to be taken “as is,” perhaps the most significant item to be explored is the nature, timing and responsibility for the performance and cost of the improvements to be constructed.
Operating Expenses. In commercial property cases, if you are going to share in the cost of operating expenses for the building, you should try to exclude capital items. You will generally benefit from operating expenses being determined in accordance with generally accepted accounting principles with carefully enumerated included and excluded costs. If operating expenses are to be paid over a base, that base should, if possible, be the first full calendar year during which the lease is in effect, and the base should be “grossed up” to reflect full occupancy. Consideration should be given to negotiating a cap on increases in operating expenses during the lease term.
Maintenance and Building Services. Your lease should have clearly outlined information to include detailed times and standards for building services and set forth the additional cost, if any, for off-hours or additional services, such as weekend or evening air conditioning or heating. You may wish to negotiate an abatement of the rent or lease termination right in the event an interruption of services continues for a specified time period.
Insurance. The lease should include a covenant by the landlord to insure the building for its full replacement cost and should include a waiver of claims by the landlord for any damage covered by insurance-as well as a commitment by the landlord to obtain a waiver of subrogation from its insurer. Tenant Default. You should receive written notice of any default including non-payment of rent or additional rent. The grace period after notice should be not less than five days for monetary defaults and 30 days for nonmonetary defaults. The landlord should only be able to pursue remedies under the lease after notice and expiration of applicable grace periods.
Title Issues. In cases of both commercial and residential cases, a non-disturbance agreement should be requested from each present mortgagee, and the landlord ought to agree to obtain such an agreement from all future mortgagees if the lease is to be subordinate to such mortgages. Otherwise, if the landlord’s lender were to foreclose on its mortgage you might find your lease terminated by that foreclosure. Like most situations in the Kingdom, being prepared for the unusual or “ This is Thailand” in negotiating or solidifying an agreement to lease can be an area where the better informed you are, the better the result.