Lender Requirements for a Commercial Property Lease

Commercial property owners typically generate the revenue needed to sustain their property and make suitable cash flow by leasing it out to businesses or entities that operate out of the commercial property.  In these cases, the lenders who hold the mortgage on the commercial property have a stake in determining how the commercial property lease is to be drafted, because since they are the de facto owner of the property as the mortgagor, they want to make sure that the leases are not too restrictive. They also want to ensure that the commercial property lease will not interfere with their ability to re-sell or otherwise re-use the property at later date.  If you are a commercial property owner, there are certain lender requirements you will want to be aware of when you are drafting your commercial lease agreements.

Commercial Property Lease Requirements

• One common lender requirement in commercial lease agreements is to differentiate between a commercial property lease, and a ground lease. 

In a ground lease, the tenant is given control over the actual land where the property is located, and may make changes to the buildings or other physical aspects of the property that might be detrimental to the lender’s ability to reuse the property after the lease is up.  A standard property lease only allows the right to use the property without major modifications unless approved by the lender. 

• Another common lender requirement in commercial property leases is that specific clauses exist determining and delineating what are permitted uses of the property and what are prohibited uses of the property. 

For example, a leasee who is promising to use a property as a bookstore, but then turns around and once the lease is signed ends up using it as an adult video store in violation of county codes or other terms, would be unable to do so under a properly drafted commercial property lease with the lender requirement that certain uses be prohibited.

• Yet another common lender requirement in commercial property leases is to specify who is responsible for repairs and maintenance to the property, and to what extent their responsibility extends. 

Obviously a lender has the desire of keeping the property properly maintained and in resellable condition, and if the tenants are allowed to do all maintenance themselves and they do not keep up with it, the lender needs to have recourse in order to make sure that any damages or repairs are completed on the tenant’s bill.  Many of these lender requirements are flexible and not all are used in every commercial property lease agreement.

Getting Help

Before you draft or sign a commercial property lease, you should consult with an experienced commercial real estate attorney. Your attorney can review the lease and documents to ensure that all items in the lease are fair and that you are adequately protected by the terms and language of the lease.