Many people, as prospective tenants, tend to assume that a Hawaii commercial lease is designed to be fair to both parties and therefore do not bother to carefully read its terms and conditions. That is a big mistake and quite shocking when you consider Hawaii commercial property leases are twenty to thirty pages long, and if the tenant ever defaults a landlord will pursue all signatories to the lease for money damages.
Skimping on an attorney review (which costs between $2,000 and $3,000 if a standard lease) seems short-sighted given the risks of not understanding what you are getting yourself into. Once we explain the lease and suggest revisions you will make the business call on what you want from the landlord.
Before You Sign a Hawaii Commercial Real Estate Lease
The following are some issues that should be considered in a Hawaii commercial property lease prior to signing:
- Make sure that the lease specifies when the landlord will deliver the premises to you, especially when the building has not yet been built. Understand what are your options are if the premises is not delivered to you on time as this could affect the date you are able to open for business. If the building has not been built out yet need to make sure you can terminate the lease if the building is not ready to be occupied by the date you need it.
- Be aware of how much your common area expenses, utility charges and other expenses will be, and when you need to pay them.
- Are you getting any tenant improvement allowance which will allow you to build out your premises? If so, the amount may be determined by factors such as: (1) rental rate; (2) lease term; (3) qualification of tenant; (4) size of space and (5) landlord’s willingness to provide you with an allowance.
- What is the permitted use for your premises? The landlord tends to favor a use clause that is precise because a different use could be undesirable to the landlord or to the other existing tenants, while a tenant would normally want a broad use provision that allows for uses that may not have been intended or anticipated at the execution of the lease. Also, a broad use provision may expand a tenant’s ability to assign or sublease.
- Be aware of the date that you need to be open for business and the consequences if you are not open by that date.
- Is there a “covenant not to compete”? If so, what is the area (radius) that you are prohibited from competing? Unlike the mainland, Hawaii is only so big. We have actually seen some non-compete areas to include the entire island of Oahu which is unreasonable.
- Be sure to talk to your insurance broker regarding your insurance requirements under the lease. Failure to obtain the proper insurance may result in a default on your part.
- Are there any restrictions on you assigning the lease or subletting? Is landlord’s consent needed? For those tenants who are looking to transfer the premises to another prospective tenant, this clause may restrict such transfer.
- When is the landlord in default under the lease? Normally leases do not describe a landlord being in default, just the tenant.
- Does the landlord have the ability to relocate you at any time? If so, you may want to insert language that the relocation must be to a location of comparable size, quality and suitable to your use.
- If possible make sure you have the exclusive right to conduct your type of business at the building. Otherwise your biggest competitor may end up being your next door neighbor.
- Does the landlord require you (and/or your relative or spouse) to sign a personal guaranty? Be aware that if tenant defaults under the lease then landlord may seek recourse against those parties who sign the guaranty.
As you can see, there are a lot of issues to consider when leasing your Hawaii commercial location. Contact us today and we’ll help you review your proposed Hawaii commercial real estate lease so you understand your business risks.
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