Common Clauses in Phoenix Business Lease Agreement

If you are a small business owner in Phoenix, one of the most important agreements you will enter into is your business lease. These agreements are complicated, and it is critical to understand all the provisions in the lease agreement before you sign on the dotted line. Your business lease agreement will have a lasting impact on the future of your business.

1. Rent and Escalation Clause

The rent and escalation clause should include the amount of rent and when it is due. It should also address penalties for non-payment and set guidelines for how the rent will periodically be increased. By including an escalation clause, the parties can ensure that the rent will be kept at the market level without having to renegotiate every year. The rent increase can be a set amount or based on factors like the increase in operating costs or the consumer price index.

2. Description of the Premises Clause

Your business lease agreement should include an accurate description of the space that you are renting. If you are renting the entire building, this will be straightforward and as simple as stating the address. However, if you are leasing a portion of the space, this section should be more detailed and include shared spaces, such as parking, storage, and conference rooms.

3. Term Clause

The term clause sets out the dates covered by the agreement. It is common for there to be multiple start dates: the dates you are allowed to set up the business, the date rent payments begin, and the date you are responsible for securing insurance and other obligations. The agreement should use specific dates (month/day/year) instead of general terms (six months, one year, etc.).

When negotiating the term clause, you should consider where you see your business in the future. If you anticipate explosive growth, you should not tie yourself down to a property your business could quickly outgrow.

4. Use Clause

The use clause addresses how you can and cannot use the space that you are listing. For example, it can restrict the signage and advertising that you are allowed to put up on the property and the type of business you can operate. As a business owner, you must confirm that you can use the space as you have planned. You should also consider how you will need to use the property in the future if your business is expanding.

5. Exclusive Clause

An exclusive clause may be added to the business lease agreement if the property includes multiple tenants. It states that you alone can conduct a specific type of business and prohibits other tenants from doing so. It is used to ensure that your competitor cannot move in next door and steal business away from you. Typically, an exclusive clause is only offered to well-established businesses.

6. Maintenance Clause

The maintenance clause lays out how maintenance issues will be addressed at the property. Common tenant responsibilities include keeping the property free from safety and sanitary hazards and not damaging the property. Typically, there will also be language stating that the tenant will follow building and housing codes. You should make sure the exact codes are defined to avoid ambiguity.

7. Improvement and Alterations Clauses

The business lease agreement should set out what improvements the landlord will complete before you move in and what alterations you are permitted to make to space in the future. It should address who will pay for the updates and whether improvements or alterations will reduce rent.

8. Insurance Clause

Most business lease agreements in Phoenix require the tenant to carry basic property and liability insurance. The parties can also negotiate to include additional insurance coverage, such as rental interruption insurance and leasehold insurance.

9. Assignment

As a business owner, it is important to always plan for the unexpected. Having an assignment clause allows you to walk away from a lease if you find a new tenant to take your place. This ability gives you security if you have to relocate or shutter your business.

10. Security Deposit 

In Arizona, landlords of residential properties cannot collect a security deposit greater than one and one halves month rent. However, there are no statutory limits for commercial leases. Several issues should be addressed in the security deposit clause, including the amount of the security deposit, the name, and address of the bank or institution that is holding the security deposit, the interest rates, and the procedure for returning the deposit. In place of a security deposit, your landlord may request a “Letter of Credit” from your bank, where the bank puts aside an agreed-upon amount. The landlord can collect under the Letter of Credit if you do not carry out financial obligations.

Your Phoenix Business Attorney

If you have questions about business lease agreements, you should contact a business planning attorney. Nicole Pavlik is an experienced business planning attorney based in Phoenix, Arizona. Call Nicole Pavlik Law Firm today at 602-635-6176 to schedule a free consultation and discuss your business planning needs.