Most businesses need space where they can operate, requiring them to lease property from a landlord. Commercial lease agreements can be complicated, and tenants will need to be aware of how the terms of a lease will affect their ability to conduct business, the expenses they will be required to pay, and other unexpected issues that may arise. By understanding some of the lease-related pitfalls that commercial tenants commonly encounter, a business owner can avoid these problems and ensure that they will be able to conduct business successfully.

Commercial Leasing Issues That May Affect Tenants

Business owners will need to fully understand the terms of a commercial lease. Some issues that should be addressed when negotiating a lease agreement include:

• Common area maintenance (CAM) - A lease may require tenants to contribute toward operating expenses or other costs related to common areas on a property. This may result in additional rent being charged on top of standard rent payments. Tenants should be aware of the types of CAM expenses they may be required to pay, including capital improvements or expenses related to other tenant suites that are not exclusively common areas. In some cases, a lease may place a cap on operating expenses, or it may limit the types of expenses a tenant will be required to pay.
• Exclusive use - A landlord may agree that a tenant will have exclusive use rights, meaning that the landlord will not allow other tenants at the building to use their leased space for uses similar to the tenant’s exclusive use. A tenant will need to confirm that their lease agreement contains an exclusive use clause that protects their interests.
• Maintenance and repairs - A lease should detail the responsibilities that apply to both the landlord and the tenant regarding property maintenance or repairs to a building’s structure or equipment. Tenants will want to be sure to understand whether they will be required to pay for major repairs, replacement of HVAC systems or other equipment, or any other structural or mechanical maintenance or repairs.
• ADA compliance - A building may need to be modified to ensure that is accessible to people with disabilities. Tenants will need to be sure to understand who will be responsible for making these updates or addressing any other issues related to compliance with the Americans With Disabilities Act.

Contact Our Naperville Commercial Lease Agreement Attorney

Before signing a lease agreement, it is crucial to fully read the document and understand all terms that apply to a tenant. Failure to fully review a lease agreement could result in a number of unexpected expenses or other issues that may affect a business. At Lindell & Tessitore P.C., we can help business owners review lease agreements, address concerns about expenses or other issues, and negotiate favorable terms that will allow them to operate their businesses successfully. To learn more about our legal services, contact our DuPage County commercial lease lawyer at 630-778-3818.

Investments in commercial real estate can be very lucrative but can also be very costly if mistakes are made. There are a variety of concerns that will need to be addressed when purchasing commercial property. This article is brief summary of some of the main due diligence items but is not exhaustive.  If a buyer will be assuming ownership of property that tenants currently occupy, they will need to be prepared to assume existing leases and understand any other contracts that are in place that will survive the Closing such as service contracts, Declarations of Restrictions and Easements, and other agreements. To ensure that the Due Diligence Process is done correctly and critical items are not missed by the Purchaser, it is crucial to work with an attorney who can help perform due diligence or guide the client in what matters of due diligence are most important during the due diligence period under the subject Purchase Contract in a transaction.

Major Issues to Address When Performing Due Diligence

An investor can protect their financial interests by gathering all information needed to ensure that they fully understand the risks and benefits of a commercial real estate transaction. In many cases, a person will have 60 days or less to perform due diligence, so it is essential to act quickly to uncover any issues that may affect a transaction or impact an owner’s ability to receive the proper return on their investment.

While the forms of due diligence that may be performed will vary depending on the type of property and transaction, an investor will likely need to address issues such as:

Since the onset of the COVID-19 pandemic in 2020, businesses in Illinois and throughout the United States have encountered financial difficulties. As the country is beginning to return to normalcy, some businesses have been able to resume their regular activities and continue operating successfully. However, many businesses are still struggling as they determine how to respond to the loss of revenue that occurred due to the pandemic. These issues have affected many commercial leases, and both landlords and tenants may need to determine how to address situations where a business has been unable to pay rent on a short-term or long-term basis. 

Negotiating Lease Modifications for Commercial Landlords and Tenants

As commercial tenants have encountered financial struggles, this has put many landlords in a difficult position. While some landlords many have pursued lease enforcement actions, others may have been hesitant to do so due to the difficulty of finding new tenants in the current marketplace. Rather than pursue evictions or take steps to terminate a lease, it may be beneficial for both parties to negotiate lease modifications that will allow a tenant to continue occupying a space as they attempt to address their ongoing financial issues.

Some lease modifications that landlords and tenants may consider during negotiations include:

Real estate developers and investors will typically have multiple opportunities to pursue projects involving commercial real estate which may include retail, industrial, office and various mixed-use developments. A development project will typically involve the construction of on-site and off-site improvements, the construction of new buildings or structures, and a variety of other changes that will allow a property owner to generate revenue by leasing space to commercial tenants. However, when planning to purchase commercial property or begin a development project, owners and investors will need to understand how zoning laws will apply to them and their options for addressing any issues that may affect their ability to carry out their plans.  Any mistakes with this process can be very costly and fatal to a project.  The zoning and land use attorneys at Lindell & Tessitore P.C. have extensive experience in helping buyers and owners navigate through the zoning and development process, including, but not limited to, due diligence matters and in seeking to obtain all zoning and development entitlements needed for the zoning or development project. 

Local Zoning and Land Use Laws

A municipality will have a number of zoning and subdivision ordinances that affect how different types of property can be used. These ordinances will typically designate certain zoning classifications within a city on their Official Zoning Map and Comprehensive Plan where properties can be used for certain commercial purposes. The zoning ordinances will place restrictions on the types of buildings that can be built, the types of businesses that can operate in a certain zoning district setting various bulk standards for each zoning district, and many other issues that will impact development and the use of a property. The following are just some of the various zoning issues to be mindful of during due diligence and zoning reviews for a development project: 

• Lot coverage and floor area ratio (FAR) - Lot coverage refers to the size of a building’s footprint as compared to the square footage of the property. Floor area ratio refers to the total square footage of a building (including on multiple floors) as compared to the size of the property. Restrictions may be placed on these figures to limit the size of buildings.
• Setback - A city may impose certain requirements on the distance between a building and the property lot lines, as well as the amount of space that must be provided between buildings on neighboring properties.  Setbacks will typically be imposed for front yard, side yards and rear yard.  If next to a residential zoned area, additional setback requirements may be imposed as well.  Also, a city may have separate setback requirements for parking spaces and additional setbacks if there are flood plain areas or wetlands located on the property.
• Parking -  A municipality will typically require a commercial property to include a certain number of off-street parking spaces based on the size of a building and amount of employees onsite. Depending on the type of establishment, different ratios may be used, such as requiring five parking spaces for every 1,000 square feet of an office building by way of example
• Safety features - Building codes will usually require commercial establishments to have emergency exits and fire escapes. Other safety features may also be required, such as sprinkler systems or the inclusion of fire extinguishers throughout a building.
• Allowed uses of property - Different types of property may have permitted uses allowing certain types of business to be conducted. Conditional use or special use permits may also allow for exceptions to the permitted uses of a property. In cases where zoning laws are modified in a certain area, nonconforming uses of a property may be allowed for establishments that were in place prior to the change.  Some municipalities can limit a property to one primary use which can be a problem if a buyer intends to use a property for multiple uses.  
• Variances.  When building setback, height, FAR or other zoning requirements are needed to be varied for a development project, variances can be requested from the municipality.  
• Stormwater detention.  Depending on the amount of impervious surface to be added to a new development the municipality will require that stormwater detention be provided onsite or off-site.  Typically, more than 25,000 square feet of impervious surface added will trigger stormwater requirements for a project.  Stormwater requirements are typically met by providing wet or dry detention onsite or piping the stormwater offsite to a permitted tributary or detention pond.  
• Planned Unit Development.  In situations where a number of variances are required for a zoning project it is usually best to submit a petition with the applicable municipality requesting a Planned Unit Development.  A Planned Unit Development has less strict requirements than a formal variance process which is typically much more difficult to obtain municipal approval because of the many standards that have to be proven at the zoning hearing.  Planned Unit Developments provide more flexibility for a Development Project.  

Contact Our Naperville Commercial Real Estate Attorney

Understanding how zoning laws may affect a commercial real estate development project can be a complex undertaking. Developers and Investors will need to make sure their proposed project will be in compliance with these laws, and if necessary, will need a zoning attorney to help apply for the most suitable zoning relief needed for the project which may include rezoning, variances, planned unit developments, special use or conditional use permits. Lindell & Tessitore P.C. can provide legal help with these matters, and we will work to protect the rights and interests of property owners and developers.  Lindell and Tessitore P.C. can also help with matters of due diligence for a development project.  Contact a DuPage County real estate development lawyer at 630-778-3818 to set up a consultation and learn more about our legal services.

Whether you are the owner of a commercial real estate property, or you are looking to rent a space for your business, reaching an agreement on a commercial lease is a crucial part of your operation. There are a variety of lease structures available depending on the property's use and the preferences of both the landlord and tenant. The complexities of these different kinds of commercial leases can be challenging to interpret, but an experienced real estate attorney can help you determine the best options and negotiate a lease that addresses your needs.

Types of Commercial Leases in Illinois

Commercial leases vary based on the rights, responsibilities, and obligations of both the landlord and the tenant. Some of the most common types of commercial leases include:

• Gross lease: In a gross or full service lease, the tenant pays rent while the landlord handles all expenses related to the property, including property taxes, insurance, and maintenance. Rents are typically higher with a gross lease, but the tenant benefits from the convenience of the services the landlord provides.
• Triple net lease: In a triple net lease, the tenant pays rent and also takes responsibility for the three net costs associated with a commercial property, which are insurance, property taxes, and common area maintenance. This arrangement removes work and some expenses from the property owner, but it usually also means that rent is lower.
• Master lease: A master lease allows the tenant to sublease the property and collect income from rent. As a tenant, you might attempt to negotiate for a master lease if you are considering purchasing the property outright in the future.
• Ground lease: A ground lease allows the tenant to rent and develop a plot of land, and it is commonly used for franchise businesses. Tenants are able to save money up-front because they do not have to purchase the property, and landlords are able to receive rental income throughout the term of the lease.
• Sale-leaseback: A commercial property owner may arrange to sell the property and then lease it from the buyer. This can be a good option for owners who need an immediate source of income but wish to continue using a property for business purposes.

Contact a DuPage County Commercial Lease Attorney

At Lindell & Tessitore, P.C., we have worked with owners and tenants on all manner of commercial leases throughout our years of real estate law experience. We can help you understand the various lease options and make sure they are executed properly in your lease agreement. Contact a Naperville commercial real estate lawyer today at 630-778-3818.