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Understanding capital expenditures clauses in a lease

There are many potential pitfalls to navigate when you are considering whether or not to sign a commercial lease. A primary area that should be examined carefully, and which may decide whether or not a specific lease is right for you, are the clauses that relate to the tenant's responsibilities in relation to capital expenditures. If you are expected to be the one to fork over substantial sums, consider looking for a different space, or negotiating this portion of the contract to find an acceptable compromise.

"Capital expenditures" in a commercial lease context generally refers to major repairs to the structure of space or costly utility systems. This usually includes the roof of the space, the foundation of the building and the air conditioning and heating system. Especially for commercial spaces, when these repairs are needed, they can mean thousands of dollars in out-of-pocket expenses.

It is not uncommon for a commercial lease to stipulate that these kinds of repairs fall to the tenant of the space to take responsibility for completing. However, while this is not an ideal scenario, it is possible to negotiate these provisions of the contract to be more favorable for you. You could suggest, for instance that the responsibility of a maintenance contract for a structural feature or utility system could be your responsibility, but with the caveat that your out-of-pocket expenses are subject to a ceiling, beyond which the landlord assumes responsibility. This allows a fair compromise without shouldering you with unforeseeable costs.

Any time that a commercial lease is being considered, the value of fully understanding the document you are about to sign cannot be overstated. The assistance of an experienced commercial real estate attorney can help you make sure that you understand the lease you are considering, and guide you through negotiating fair adjustments to the lease if it becomes necessary.

Source: The balance, "10 Questions to Ask Before Signing a Commercial Lease," Jean Murray, accessed Oct. 05, 2016

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