How Commercial Lease Agreements Work in Ohio

Ohio Commercial Leases 101

A commercial lease agreement is a legally binding document between a lessor – an owner/landlord of a commercial property in Ohio – and a lessee – a tenant who is leasing the space. A commercial lease agreement is used between two individuals and/or businesses. There are many different types of agreements such as a lease for retail stores or office, industrial and warehouse leases, among others. The terms of the lease will dictate how the property can be used, how long the property can be leased and what kind of payment schedule will be used, among other things. The cost of the leasing is generally higher than a standard residential lease agreement, however the terms of the lease may last longer than other lease agreements .
For both landlords and business owners, the rules and regulations governing their commercial leases are important. If you are a business owner, you need to be sure you do not jeopardize your business by not performing the duties outlined in the lease agreement. At the same time, landlords and property managers must be certain they are protected from costly damages and other liabilities.
Because of all the factors involved and the potential consequences that exist from failing to abide by lease agreement terms, it benefits all parties to have a commercial lease agreement attorney in Cleveland working on their side.

Important Provisions of Ohio Commercial Leases

Every commercial lease should list the entities that are parties to the lease. Often parties are identified as follows: "Landlord: ABC Corporation, a Georgia corporation with an address at 1200 West Peachtree Street NW, Atlanta, Georgia 30309, and Tenant: The Widget Company, an Ohio corporation with an office at 100 East Broad Street, Columbus, Ohio 43215, together hereinafter referred to as "Parties" or "Party." Use whatever clauses you like, but be consistent. Also, bringing in all of the entities for a club deal should be done at the same time. For example, if Landlord is an entity controlled by Party A, but Tenant is controlled by Party B, and Party C is the successor to Party A, then don’t leave any of them out.
A lease should also contain an address for notices to the Landlord. If the notice does not go to that particular Landlord entity, it will be looked at by someone else, and may well not get to the intended party, and may simply be ignored. Notices are in general not a good idea.
Also, all leases should say when the rent is due and where it is to be paid. If not stated, most courts will construe the lease to require rent to be paid on the first of each month. You can change that by making it a daily thing, but it is always at the beginning of a period. I have seen leases that require payment of late fees on a weekend. I know that means trouble for that landlord.
A lease should also state the duration of the lease. A one year lease is more than likely not going to be accepted as such if the lease expressly terminates on a Saturday. The law looks through a lease to see if you are really trying to create a tenancy. A two-year lease that expires on a Saturday will likely not be construed as a tenancy. You can easily run afoul of minimum pension rules, so just don’t do this.
Ultimately, the lease says when it terminates. What happens then? Most leases will say that the lease goes month-to-month. Leases that continue automatically on a month-to-month basis are not tenants at will. Instead, they are a new tenancy. The tenant can quit any time, but so can the landlord. The rent deposits made by the Tenant typically stay in the Landlord’s hands indefinitely by further express agreement between the parties.
The lease should say what it thinks maintenance is. Often the lease terms will provide for a maintenance cap for Landlord, but that is illusory unless that responsibility is spelled out in detail. For example, if Landlord is responsible for the exterior surface areas, make clear who is responsible for any improvements that happen to be placed on the land. As another example, if the Landlord withholds approval for a proposed use, does the tenant have the right to erect any temporary structure to a height of 50 or more feet, regardless of Landlord approval?

Obligations of Tenants and Landlords

In Ohio, a commercial lease agreement is subject to the general rules of contract law, but the Ohio Revised Code has specific sections addressing the obligations of both landlord and tenant. As a matter of law in a commercial lease agreement the tenant has a duty to "make ordinary repairs" to the leased property, while the landlord bears the responsibility for repairs beyond the ordinary. Landlord-tenant law of course varies from state to state and in Ohio it is primarily contract-based and therefore the parties have a fairly free hand to incorporate their own maintenance requirements into their lease agreement.
In our experience, maintenance of the interior, exterior, heating and air conditioning, plumbing, and other systems of having ownership of commercial property in Ohio can lead to significant expenses. We routinely encourage our clients to understand all the costs associated with the property they are leasing as well as the potential for additional remodeling costs for the tenant. Pursuant to Ohio law, the landlord maintains responsibility for the ordinary and extraordinary repairs for the parts of the building that reflect the structure itself. We recommend that the lease agreement establish a detailed schedule of maintenance responsibilities to avoid conflict and confusion. We commonly see a landlord trying to pass along certain costly maintenance obligations not easily categorized as "ordinary repairs" to the tenants of properties we represent. It is extremely important to review any maintenance obligations and allowances in order to anticipate conflicts and avoid litigation.

Negotiating Commercial Leases in Ohio

Negotiating a commercial lease agreement in Ohio demands careful attention to every detail. In most cases, the negotiating process will involve not only the prospective tenant and the landlord, but also each party’s professional advisors or agents, which may include Brokers, attorneys, and/or accountants. The vast majority of these Lease Agreements involve extensive negotiations, sometimes incorporating counteroffers which may or may not be accepted, regarding the newly-proposed Lease’s terms, including any new or modified clauses or riders.
These negotiations typically take place after the parties have performed their due diligence (for Leases of vacant buildable space) or after all repairs and improvements that need to be made have been identified. In addition to negotiating the economic terms, the parties are also negotiating the length of the term, renewal options, options to terminate, options to purchase, any liability for damages, repair, or replacement, any indemnity provisions, any non-competition provisions, and virtually every other conceivable issue as to which there is or may be a difference of opinion.
Often the parties engage in protracted negotiations, especially for large commercial properties, with the final lease being hundreds of pages long and containing thousands of words. Negotiating this type of complex document can appear daunting to an uninitiated individual. However, because the real objective is to agree on a compromise approach to all issues, the parties continue to negotiate until all differences are resolved. Although the parties may when they reach final agreement appear to be content with their negotiated lease, they often feel that this "compromise" between their different points of view and requests is reasonable under the circumstances. Both parties then proceed to sign the lease and continue with their ordinary business – even if some of their requests went unfulfilled.
Ohio requires that every commercial lease, regardless of size or scope, be in writing and signed by both parties. A detailed and well-written commercial lease agreement should cover all of the usual issues such as rent/money, maintenance/repairs (in some cases the responsibility falls on the landlord, in others the tenant), utility charges, taxes, insurance, tenant improvements/construction work, termination options, renewal options, and miscellaneous other issues, all in accordance with Ohio law. In addition, there are must-have agreements for each tenant to sign to protect the landlord from liability and to include a statement that the tenant has the financial resources to pay the rent each month and otherwise comply with the obligations of the Lease. Even though it isn’t required, it is also advised that the tenant include a personal guarantee of the Lease by persons who have the financial resources to pay the monthly rent in the event of a default.
In summary, negotiating a commercial lease agreement in Ohio is a very normal part of the process of leasing commercial property and a complicated matter that should always be preceded by good planning and research, and followed by proper record-keeping and perfecting the transaction.

Ohio Commercial Leases: Rental Rates and Fees

Rental rates for Ohio commercial properties are dependent on a number of different factors. These include, but are not limited to, size, location, and whether the space is new or old. Other factors affecting rental rates may include landscaping, exterior maintenance and repairs, snow and ice removal, security, janitor service, and utility costs. While all Ohio commercial lease agreements are different, rental costs in one area are typically similar to nearby properties . The cost of real estate for lease is also impacted by the current condition of the Ohio economy and the predicted future of that economy.
Tenants must also be careful about additional costs that may pop up after they have entered into a lease agreement. It is very important to verify what items the tenant is responsible for paying. The tenant may very well be responsible for real estate taxes, insurance, and maintenance of the property.

Dispute Resolution in Ohio Commercial Leases

Commercial leases in Ohio are subject to the general principles of contract law, and the provisions of the Ohio Landlord Tenant Act. This statute establishes many of the obligations a commercial landlord will have and it discusses actions that a tenant can take when a landlord is in breach of contract. In particular, the code section O.R.C. 5321.07 talks about tenants obligations in a commercial lease and O.R.C. 5321.09 outlines the lawful duties of a landlord in a commercial leasing agreement.
Ohio landlords must comply with the law as well as all other terms in the lease agreement. A commercial tenant may bring an action at law for damages under the terms of the lease, or seek specific performance or other equitable remedies as provided through the code section O.R.C. 5321.11. Eviction actions are governed by the code section O.R.C. 1923.04.
Mediation and arbitration of disputes is not necessarily required or available under Ohio law. However, if both parties voluntarily agree to use a neutral third party to try to settle their dispute and work together to resolve the issues outside the court system, it is likely that an outcome can be reached that satisfies both parties. Whether the dispute is settled through mediation or arbitration, it is very important to note that the mediation or arbitration decision must be agreed to and in writing.

Typical Pitfalls and Tips

More often than not, the mistakes people make regarding a commercial lease in Ohio can be avoided if both sides are clear about what is expected of them at the onset. If a detailed discussion takes place between both parties, whether it be an individual or a large corporation, it is much easier to determine the level of responsibility of each party and what to expect from the other as the months and years go by.
Most leases are based on past business dealings and each side wants to repeat only the successful parts of those transactions. Some important mistakes you might make when entering into a commercial lease agreement in Ohio include:
Not trusting a conflict of interest clause. It might turn out that in order to lessen costs, the landlord wants to deliver the premises in "as-is" condition. This means that you, as a prospective tenant, have to do all the alterations or repairs needed. If this is acceptable to you, make sure that the lease provides a realistic amount of time for you to make the physical changes you need.
Not understanding your rights. Most real estate attorneys focus on the purchase and sale of property; however, you need someone who understands Ohio commercial leases and will go over the lease with you to be certain there will be no surprises. A little simplistically put, commercial leases will determine what will happen to you and your business if an unexpected natural disaster, like a flood or earthquake, occurs. Will you have coverage in the event that the building you are renting is destroyed, or do you need to have that type of insurance? If your business is not destroyed but the surrounding area is, you do not want to sign a commercial lease that limits your rights if the space is insufficient for your needs.
Not understanding the fine print. The majority of commercial leases are agreements prepared by the landlord or his/her/her attorney. The landlord is trying to protect him/herself against any problems that might arise, but unfortunately, since these agreements are one-sided, the tenant will probably be the one who has to bear the extra costs or risk a lawsuit.
Not understanding the difference between common area maintenance and property insurance. A good commercial lease agreement will define the common area. You should know what costs are associated with it, what you will need to pay if it needs to be repaired, and what share of taxes are due. It will also be detail the cost of property insurance as well as clarify whether or not the landlord is obliged to carry enough property insurance to prevent you from suffering losses.
Your partner has a better old agreement. All commercial leases are negotiable, including the language as well as the components, which means that even though a landlord may have an existing agreement with someone else, your lease will not necessarily be identical.

Helpful Resources for Ohio Commercial Lease Agreements

Entering into a commercial lease agreement can be a complex process for Ohio business owners. While understanding the key components of a commercial lease agreement is essential, seeking guidance and assistance from industry associations, legal professionals, and state resources can provide additional support.
In Ohio, the Ohio Secretary of State’s office provides helpful resources and information for business owners. The Business Gateway website offers a comprehensive starting point for individuals looking to establish a new business. Business owners can also find information about starting a new business through the Ohio Small Business Development Center Network, which provides business consulting, training, and resources to help owners navigate the leasing process and other business matters.
Moreover, the Ohio Small Business Council, part of the Ohio Department of Development, is an excellent resource for small business owners looking for assistance on a variety of business issues , including commercial leasing. The council also advocates for small businesses in Ohio and can direct owners to other supportive resources.
In addition to state resources, industry associations can be invaluable to business owners involved in commercial leasing transactions. For example, the International Council of Shopping Centers (ICSC) and the National Association of Industrial and Office Parks (NAIOP) are professional organizations that represent professionals who work in the retail and commercial real estate industries. Both associations provide access to industry research, networking opportunities, and educational resources relevant to commercial leasing transactions.
Commercial lease agreements encompass an array of different property types and sectors, from office space leases to industrial and retail space. When faced with any lease negotiation or agreement, business owners should strongly consider consulting with an experienced attorney to better understand their options and obligations when entering into a commercial lease agreement.