If you have entered into a lease agreement for commercial retail, warehouse, office space, or any other building or facility used for business purposes, you may find yourself in a situation where changed circumstances make one or more provisions of the original lease unworkable or undesirable.
When both parties to a commercial lease (the landlord and the tenant) agree to make changes, those changes can be accomplished through a document called a commercial lease amendment.
What Is the Difference between a Commercial Lease Amendment and a Commercial Lease Addendum?
An amendment to a commercial lease agreement involves making changes to an existing lease agreement that is already in force. It may involve changing a single paragraph or section, or it may involve a more comprehensive overhaul, but the end result is that some of the language in the original lease has been modified in some way to reflect the wishes of the landlord and the tenant.
Sometimes, the word “addendum” is used incorrectly when someone means to say “amendment” to a commercial lease agreement. A lease addendum is a separate, stand-alone document that is provided with the original commercial lease agreement at the same time when it is originally signed. An addendum can be used to provide additional terms or clarification to information contained in the original lease, of which it is a part, right from the start.
Understand Your Existing Lease Before Amending It
Whether you are the landlord leasing space to a business or a tenant leasing that space, it is important that you understand the provisions of your existing lease before amending it.
If you simply make a change to one lease provision without reviewing the entire lease agreement, there is a possibility that you could inadvertently make a change that conflicts with another section of the lease. This could leave you at risk if you need to enforce the lease through the court system at a later date.
Read through the existing document with an eye toward identifying any clauses or sections that are dependent on or related to the section you want to amend, so you can make all needed amendments at the same time.
Negotiate Amendments
Before finalizing your commercial lease amendment in writing, you should negotiate the changes with the other party. The lease amendment will then simply memorialize your earlier conversations, documenting your intentions in writing. This can avoid the need to prepare multiple draft versions of your commercial lease amendment.
What Types of Things Can Be Amended Using a Commercial Lease Amendment?
A commercial lease amendment can be used to make nearly any kinds of changes that the landlord and tenant agree on. Essentially, as long as what you are agreeing to is legal, your lease amendment can include it. Having said that, most commercial lease amendments fall into the following five categories:
Extend the Term of the Lease
The most common use for commercial lease amendments is to extend the term of the lease. For example, if a lease allowed a business to occupy office space for a three-year period and the business wants to continue using the space at the end of the lease period, a commercial lease amendment could be prepared to extend the lease for another three-year period (or for any other time period the landlord and tenant negotiate together).
It is common for the cost of leasing the space to go up when the original term ends and is renegotiated for a new term. If the amount of rent will be changed for the new term, the lease amendment should provide the new, agreed-upon rent amount.
A lease amendment may also be used to change the terms of the renegotiated lease from a fixed-term lease to a periodic tenancy arrangement.
Expand or Decrease the Size of the Space Leased
A tenant’s need for space can change over time as their business grows or struggles. Negotiating and signing a lease amendment can be a way to allow a business to expand to meet growing demand, or to scale back their operations and expenses, by reducing the amount of space they are renting (and the amount they are paying to rent that space).
Make Improvements or Modifications to the Space the Tenant Is Leasing and Occupying
When they are initially signed, commercial leases often include provisions addressing changes the tenant wants to be made, and that the landlord agrees to make, before the tenant takes possession of the space.
Over time, it is not uncommon for commercial real estate tenants to want to make changes or improvements to the space. This may be as simple as upgrading or updating paint and décor, or it could involve building a loading dock, changing wiring for improved Internet and telephone connections, adding individual offices or cubicles, or creating meeting spaces by partitioning a larger space. It may also become necessary to make improvements to comply with the Americans with Disabilities Act (ADA), modifying space to make it accessible to disabled workers or customers.
A commercial lease amendment can be used to identify the changes the landlord and tenant mutually agree on, and to identify who is responsible for paying the expenses of and arranging for the labor and materials for such improvements. An exhibit to the amendment outlining the proposed construction may make sense, depending on how significant the agreed-upon changes are.
Allow the Tenant to Occupy Adjacent Space
If you are a tenant leasing space and you want to expand your operations or otherwise need extra space, you may have an interest in being able to lease space adjacent to you if the tenant using that space leaves.
A commercial lease amendment can be used to expand the terms of your lease when that space becomes available, so your new lease would essentially cover both your previous space and the adjacent space.
However, even if the tenant in the adjacent space is not vacating the property yet, the lease could still be amended to give you (or your tenant) the right of first refusal to lease that space if and when it becomes available.
Change Other Lease Terms and Provisions
An amendment can be used to change virtually any other provision of a commercial lease agreement. This may include:
- the address for remitting rent payments or for communicating with the landlord or the tenant (for example, the landlord may decide to stop using a servicing company and may amend the lease to formally provide tenants with information about their new point of contact in the landlord’s own business office);
- the penalties for not paying rent on time and as agreed, including the amount of any late fee as well as what triggers a late fee;
- lease assignment provisions (i.e. changing a lease that did not allow assignment to one that does allow it, or vice versa);
- provisions regarding subleasing space to specifically allow (or prohibit) the use of commercial sublease agreements;
- insurance requirements and obligations for either the tenant or the landlord;
- changes to the utilities provided by the landlord and those the tenant is expected to pay;
- changes to the description of, and use and maintenance of, common areas used by all of the landlord’s tenants;
- changes to disclosures required by applicable state laws; and
- changes to any other provisions of the existing commercial lease agreement as agreed on by both the commercial landlord and the business tenant leasing the space.
What Should Be Included in a Commercial Lease Amendment?
When you have identified the provisions you want to change, delete, or add to your existing commercial lease agreement, it is time to make the changes by drafting your lease amendment.
The components of a commercial lease amendment should include the following provisions:
- Identify the landlord and the tenant
- A statement that both of the parties (both the landlord and the tenant) wish to amend an existing commercial lease agreement
- The date the original commercial lease agreement was signed, and the date(s) of any previous amendments to the original lease
- The date of the commercial lease amendment
- The signatures of both the landlord and the tenant, or their authorized representatives
- Each change you want to make to the existing lease should have its own section. The amendment to your existing commercial lease should explain those changes in clear and understandable language. If a provision is being deleted, or a new section or paragraph is being added, the amendment should provide the paragraph number(s) and title(s) for reference. If a section or paragraph is being changed, the amendment should include the language for the new paragraph in its entirety.
What Is Required to Make a Lease Amendment Legally Enforceable?
As with any kind of legal document, both parties to a commercial lease amendment need to have the legal authority to enter into a legal contract at the time they sign.
The landlord’s and tenant’s (or their authorized representatives’) signatures will need to be witnessed by a notary public who should sign and affix his or her stamp or seal as applicable in the state where the document is being signed and notarized.
Points to Remember
Amendments to existing commercial lease agreements are legal contracts, so it is important to understand what you are agreeing to and to be deliberate about the changes you are making. Commercial leases can be amended more than once, but it is a good idea to be thorough and as complete as possible to lessen the need to make additional amendments right away.
After your amendment has been signed, both the landlord and the tenant should retain copies for their records, attaching them to (or keeping them in the same place as) the original lease agreement.
Conclusion
When a lease reflects the landlord’s and the tenant’s wishes regarding the use of commercial real estate and the terms and conditions for such use, both parties can benefit from the relationship.
Amending an existing lease by negotiating, preparing, reviewing, and executing a valid commercial lease amendment helps to protect both parties by documenting their intentions in writing.
