Understanding Your Rights and Limitations Under a Commercial Lease

So, you’ve decided to open a storefront for your business. Congratulations! After you have found the perfect spot, it’s important to think about the rights and obligations that you may have under your commercial lease. This month’s blog discusses the important rights and limitations you should pay attention to before you sign your commercial lease. 

In Pennsylvania, residential leases include implied warranties, like the warranty of habitability, which requires that a residential landlord provide a livable space with heat and hot water to the tenant. However, commercial leases do not include any implied rights and are governed entirely by the terms in the lease, so it is important to take a closer look at some of the provisions that could affect how you use the space. While we always encourage you to consult an attorney to help negotiate your commercial lease, here are some of the provisions you should especially keep an eye out for when negotiating with your landlord.

Responsibility to Repair, Replace, or Maintain

Each party’s responsibilities for repairs, replacements, and maintenance of the property should be clearly delineated to ensure there is no ambiguity regarding who is responsible. Some common landlord responsibilities include structural repairs to the roof, foundation, walls, and utility lines. You will also want to ensure that the landlord is responsible for replacing things like the furnace, water heater, etc. Common tenant responsibilities include interior maintenance and repairs that are not structural in nature. However, sometimes tenants will be responsible for repairs of major appliances like the furnace or electrical system. You want to be sure, however, that the landlord is responsible for replacement of these appliances, or an outage could cost you. If your lease is silent as to replacement of any item, Pennsylvania case law states that, unless a lease specifically states that the tenant is responsible for the replacement of any item, that duty will fall to the landlord. However, it’s important to keep in mind that there is no right of “self-help” in your commercial lease, unless it is specifically stated within the terms of the lease. Which means, you do not have the right to make repairs or replacements and be reimbursed for those expenses by the landlord. 

Early Termination

Commercial leases tend to be for a longer term than residential leases, typically ranging from 3 to 5 years initially, so it is important to see if you can negotiate an early termination option in case you are unable to obtain the necessary permits for your business, repairs aren’t being made that are affecting the ability to use the premises, and/or to relocate or cease operation.

Confession of Judgement

In a commercial lease, you will often see a provision in BIG CAPITAL LETTERS that is called a Confession of Judgement. This language states that a landlord, without providing notice to you, can appear in a magisterial court and obtain a judgment against you for your eviction and damages. Because of this provision, neither the landlord nor the court is required to give you advanced notice of the hearing, and you are not entitled to appear and present a defense. This is a common provision in commercial leases, and landlords are reluctant to remove this. But if you have stronger bargaining power in negotiations, this is a provision you should look to remove. 

Force Majeure

You will sometimes hear this provision referred to as “Acts of God.” This provision addresses catastrophic events that are unforeseeable and outside of the landlord’s or tenant’s control. Since COVID, this provision has typically been adjusted to include global pandemics and government stay-at-home orders. It is important to pay attention to this provision, to see what your options are in the event you are not able to physically occupy your leased space for an extended period of time. For incidents of Force Majeure that physically damage the property (think: tornado, ice storm), you will want to check for language in your lease that includes reasonable or expedited response and repair or replacement times by the landlord which contains a time cap that allows the you to leave the lease if that time has been exceeded (for example if the repairs cannot be made within 30 days, the tenant can terminate the lease). 

Personal Guarantee

Landlords will often ask new businesses with limited credit history to sign a personal guarantee on a commercial lease. This means you are agreeing to be personally liable for all tenant obligations under the lease. While this may be hard to negotiate out at the beginning, tenants should consider asking for a sunset provision on this guarantee, stating that if all rent has been paid on time for the first year or two of the lease, then the personal guarantee would terminate. 

There is a lot to consider when entering into a commercial lease. It’s important to understand all of the parts of your lease before signing. Consulting an attorney can help you ensure you are addressing all of the considerations we talked about here. As always, we are here and ready to help!

DISCLAIMER: This blog post is meant for informational purposes only and does not constitute specific legal advice or create an attorney-client relationship. Readers should discuss their specific situation and considerations with an attorney.