What is a Warehouse Rental Agreement?
Warehouse rental contracts, also known as lease contracts for industrial property, are contracts for rent for real estate. Like all other kinds of contracts, these agreements are civil and commercial commitments between the lessor and the lessee. In other words, they are agreements for purchasing, selling, leasing, renting or hiring products such as machinery, vehicles and household goods. For the duration of the contract, the provider is referred to as the lessor, and the customer is the lessee.
Essentially , warehouse rental contracts are agreements that explain how a lessor and lessee will do business in terms of the rental of an industrial property. The lessor is providing space on which the lessee may store goods. Typically, agreements of this type are structured as fixed-term contracts, but they can also be leases without end dates, also known as free leases.
Companies engaging in warehouse leasing should review the leasing laws particular to their location, as there may be significant differences in the requirements for such contracts across the United States.
Key Provisions of a Warehouse Rental Contract
Rent Duration: This clause specifies how long the lessee is authorized to use the property, usually detailed as a start and end date. It will often also include what happens when the lease expires, such as whether it’s necessary to sign a lease extension or whether the lessee will be automatically granted an extension for the same period or less, or whether it’s necessary to vacate the property on the agreed lease expiry date.
Rent Value: This clause states how much the lessee must pay the lessor to rent the premises. It usually appears in a dollar amount. For example: The lessee will pay the lessor $_____ per month, due on the 1st of every month. This clause may also include information about late fees or whether the rent can be paid in goods.
Maintenance: This clause outlines each parties’ responsibilities for maintenance and upkeep of the goods and the premises. For example: The lessor will maintain all public utilities on the premises, while the lessee is responsible for maintaining their own supplies of electricity. This includes maintaining electricity in those areas of the premises that are exclusively for their use. The first example above spells out exactly what is to be maintained and who is responsible for maintaining it. The second gives no specifics at all, yet is still a good example of a maintenance clause.
Termination: This clause defines how a rental agreement can be terminated. For example: A lessee may terminate this lease earlier than the agreed duration by _______ days’ written notice to the lessor. This clause may also detail other termination conditions. For instance, if it’s a short-term rental, some leases may allow the lessee to end the agreement prematurely for a small fee that’s still less than paying off the rest of the lease. It should be noted that in many real estate jurisdictions, there are specific laws about termination conditions, which should be followed regardless of what is stated in the contract. A lawyer with experience in commercial rental contracts will be familiar with the relevant laws.
Legal Provisions of a Warehouse Rental Agreement
In addition to the commercial considerations involved in the leasing of warehouses and storage space, there are a number of legal issues that must be addressed as well. Some of these issues may apply at the municipal or administrative level, but all issues should be considered.
Zoning Laws
The property where your warehouse is located must be zoned for the use you intend to employ it. In addition, there may be zoning codes in place regarding parking availability, number of entrances and other rules that must be followed. The land use and quality of life department of a municipality may ask you to file an application to seek a "special permit" to confirm that the warehouse is being used in a way that is in compliance with the zoning code. You will also want to ensure that the building itself meets square footage and occupancy requirements and that it has the necessary entrances, fire exits, etc.
Insurance and Liability
Any commercial contract for use should include a section on liability. This should state who will be responsible in the event that the warehouse sustains damage due to theft or natural disaster, such as fire, flood, earthquake, etc. It should also discuss what happens in the event someone is injured on the property during the rental period and what happens if the lease is terminated prematurely. Many landlords will have a standard contract available for tenants to sign, which should contain this information, but it is always a good idea to read any document before signing and to ask questions if anything in the lease is not clear.
Environmental Concerns
Warehouses, like any other buildings or storage facilities, can be at risk for leaking hazardous chemicals, including anything in a barrel that could potentially break and leak. Material Safety Data Sheets (MSDS) rule should be followed and you may need to hire done to inspect all the hazardous materials on the property to ensure that they are properly marked, sealed and stored to reduce the chance that they will leak.
Health and Safety Codes
Depending on the size and occupancy of the warehouse, certain health codes may apply in order to ensure the safety of the occupants. If employees will be using the warehouse for work, the lease should address the issue of ergonomics and workspace/furniture arrangement. Workstations should be set up to allow for optimal movement and ease of operation. Further, if employees will be spending long hours inside the warehouse (such as overnight workers), there should be certain freedoms in the contract suggesting that the warehouse be equipped with air or heat to ensure health and well-being.
Although no one enjoys reading multiple pages of text in a lease, all those provisions are in place to ensure that the business runs smoothly without a burden of legal liabilities.
Negotiating Your Warehouse Rental Agreement
When negotiating a warehouse rental contract there are numerous terms that a tenant might seek to include. For example, when negotiating the amount of rent, a tenant might advocate for a reduced rate over the life of the lease. Additionally, a tenant may attempt to obtain early renewal options, renewal options with a cost cap or a build-in increase, or the ability to make substantial modifications to the warehouse space. A warehouse tenant can also push for eliminating or conditioning landlord costs as recovery by the landlord to the tenant. Of course , these terms are subject to the negotiating power of the parties but, in many cases, the proposed section probably would not be included in the lease if a tenant were not able to negotiate some or all of the terms.
In trying to negotiate these provisions, the primary goal for a tenant is to obtain a "fair" deal based on their situation. The lease negotiation process is often a test of two or more people’s knowledge and power.
Common and Controversial Issues in a Warehouse Rental Agreement
Lease disputes over repairs and improvements are a common occurrence. This is especially true in warehouses because they are more complex structures, generally used for storage rather than occupancy and often include specialized equipment.
In addition to repairs and improvements, changes in state or local laws may increase the cost of operating a warehouse. For example, a landlord may be required to install a sprinkler system under state law. Such a requirement may fall on the landlord when the lease is silent as to responsibility for such costs.
A landlord or tenant can avoid these and other problems by carefully drafting a warehouse rental contract. Both parties should be clear in how they want any future disputes over repairs or costs to be handled. A landlord can have draft provisions that conform the contract if there is a change in the law or a change in circumstances. If circumstances make compliance with the contract impossible, the parties can either modify the contract or terminate the contract.
The laws for commercial leases in Florida require a written contract for a landlord to recover unpaid rents, as well as require an explicit termination date in the contract in order to recover for possession of the leased premises after termination. Furthermore, the Florida Statutes do not allow a landlord to hold personal property included in a commercial lease as security for payment of unpaid rent.
Practical Tips for Drafting and Negotiating Contracts
In the warehouse rental context, it is prudent to consider the purpose of each term and section and to draft the contract accordingly. While all provisions are important, certain provisions must be reviewed in detail to ensure they align with your expectations. These terms include, but are not limited to the following:
The Parties: Ensure that the definition of "Tenant" is clear and appropriately describes the intended tenant and all co-tenants. In some instances, this may be an individual, a partnership or a corporation. If the tenant is a corporation, it is a good idea to require that the president, vice president or secretary of that corporation sign as a personal guarantor of the lease. If a personal guarantor is required, it should be specified in a separate agreement, otherwise the tenant can avoid his or her obligations under the lease.
The Rent: It is vital that the rent amounts and lease terms are clearly spelled out in the rental contract. Otherwise, the Tenant could assert that it is only required to pay a lower rent because the amount is not clear. Furthermore, consider whether the rental amount should increase each year or whether you wish to preserve your option to unilaterally increase the rent by providing for increases at your discretion.
Term of Lease: As a landlord, you should make every effort to negotiate a long lease term to minimize the chance that you will lose a good tenant when you are not prepared to re-rent the space . If you want the option to terminate early, it is best to include right to terminate provisions in the contract. While the to terminate provisions must be reasonable, there are many businesses that may need a short-term rental. It is a good idea to allow for a month or two break-ins.
Insurance: Ensure that insurance requirements clearly spell out the types and amounts of insurance that tenants are expected to maintain and to provide proof of to the Landlord. Be sure to review the limitations on liability and the liability limits you expect of your tenant. It may be in your best interest to request that your tenant hold you harmless. However, remember that the tenant may request the same of you. We recommend limiting the indemnity clauses to negligent acts rather than including them for intentional acts, if you have any intention of holding tenants responsible when a catastrophe occurs.
While this is not an exhaustive list of the key terms that need to be reviewed in drafting and reviewing warehouse rental contracts, it provides an overview of the types of issues to watch for. Further ensure that you do not find yourself in a bad situation down the road by clearly setting forth and defining the terms and requirements for all parties. If you have any questions or concerns about drafting or reviewing a warehouse rental contract, it is best to seek the advice of an attorney.
