Commercial Lease Laws

Image of legal books to indicate commercial lease laws

Commercial leases are complex documents with a wide range of applicable laws, rules and regulations.  Navigating these legal requirements without the counsel of an experienced real estate attorney can be difficult, costly and time-consuming.  Generally, commercial tenants are provided fewer protections than residential tenants, as commercial parties are assumed to be on a more equal playing field than residential landlords and tenants.  In fact, there are no laws restricting commercial rental rates, assignment or sublease, or maximum lease duration.

This post will touch on a few of the laws applicable to commercial lease agreements:

Federal Laws

Americans with Disabilities Act: If your business serves members of the public (for example, you own a retail store), or you have 15 or more employees, the federal Americans With Disabilities Act (ADA) (42 U.S.C. § § 1201 and following) makes both you and your landlord responsible for assuring that the premises are accessible to the disabled.

The ADA lists 12 categories in which business can fall under including hotels, bars/restaurants, stores, office buildings, entertainment centers, movie theaters, museums, galleries, retail stores, and more – all of which fit perfectly into the category of commercial real estate. The facility must also include operations that affect commerce (travel, trade, traffic, transportation, communication) in order to be considered a public accommodation. There are various exceptions to these categories.

The Resource Conservation and Recovery Act of 1976 (42 U.S.C. § § 6901 and following), or RCRA, which deals with contamination leaking from underground storage tanks.

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. § § 9601-9675), or CERCLA, commonly referred to as the “Superfund,” which covers chemical contaminants released from just about everything except underground tanks. This law provides for strict, joint and several liability imposed upon the owner and operators of any contaminated property.

The costs of environmental clean-up can be substantial. Under environmental and tort law, a landlord can be liable for the environmental contamination caused by tenants, and tenants can be responsible for environmental clean-up already existing on the property. Thus, it is important for both landlords and tenants to include appropriate environmental compliance provisions in the lease.

State Laws

Mechanic’s Lien: Mechanic’s liens arise in various scenarios The typical scenario in a commercial lease involves unpaid contractors. So, if you’re looking at “shell” or “core” space which is not fully built-out and tiehr you or the landlord will hire contractors to make improvements to the building, you should be aware of mechanic’s lien laws in your state. Generally, these laws allow contractors, subcontractors and suppliers to file liens against property owners who don’t pay for completed work or delivered products.

Depending upon who contracted for the work and what your lease states, a mechanic’s lien placed on the property may result in your breach of the lease and your loss of the space. Therefore, it is important to understand what your lease says, and who is responsible for paying the contractors. You may also want to have a UCC-1 search done on the property and the landlord, to ensure there are no liens already outstanding on the space you’re interested in leasing.

Evictions:  Under many state laws, a landlord may only terminate a lease with a Forced Entry and Detainer action, which requires a court order requiring the tenant to leave the property. Additionally, before an eviction action can be filed, the law typically requires the landlord to provide the tenant with a demand for possession, allowing the tenant a certain number of days to either fix the lease violation or vacate the property.

In most states, Landlords are generally prohibited from using self-help methods, including locking a tenant out of the property.  Although the landlord may include a self-help remedy in your lease, such provisions may not be enforceable in your state (Colorado included).

Local Regulations

Prior to signing a lease, tenants need to ensure the local zoning laws allow for the intended use. In addition to the types of businesses allowed, zoning ordinances may impose requirements with respect to parking, signs, hours of operation, truck access, and other matters important to the operation of your business. Before building-out the space, the building code will need to be reviewed to ensure you’re in compliance, and having an architect on board can help you navigate those local laws and regulations.