Leasing commercial space is a big responsibility – the success, or failure, of your business may ride on certain terms of the lease. Landlords can offer their property to prospective tenants a variety of different ways. Sometimes they will offer to perform the improvements themselves, while other times, landlords can offer a construction allowance to their tenants.
Hundreds of commercial transactions take place daily. Recently, we have seen an increase in landlords offering their space “AS-IS”. When a subject property is offered for lease (or sale) in “AS-IS” condition, this essentially means that the property will be delivered to the tenant exactly as it stands in its current condition. The enforceability of an “AS-IS” provision presumes that the buyer or tenant was given free opportunity to inspect the property. “AS-IS” condition negates any warranty that a seller or landlord might otherwise be thought to have given. Any improvements to the space would be the responsibility and the sole expense of the tenant.
“As-Is” Condition: The acceptance by the tenant of the premises in their existing condition at the time the lease is executed. This would include acceptance of any physical defects, code violations, or other problems with the physical and legal condition of the premises.
This can be beneficial for both parties. It relieves the ownership from incurring any additional expenses, as well as providing the tenant flexibility with design and cost management. Generally, “AS-IS” space tends to expedite the leasing process, because there are no improvement costs to consider or amortize into the lease. This is also a major benefit to both parties, as time often kills deals.
However, leasing a space “AS-IS” does have some drawbacks. For example, if a tenant decides to lease an “as-is” space without performing proper due diligence, they could be on the hook for large capital expenditures. These could emanate in the form of a building system failure, like heating or electrical, a leaky roof, or even potholes in the parking lot. It is important for tenants to protect themselves from being liable for these major expenses. As brokers, we can offer remedies by including specific clauses in the lease that explicitly place the burden of any capital expenditures like this to be the responsibility of the landlord.
If you have any questions regarding property offered in “as-is” condition, please do not hesitate to contact the helpful commercial agents at GC Realty & Development!
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