Negotiation of lease of industrial buildings

Leasing contracts are usually quite simple in terms of their structure and content. However, the complexity of these increases exponentially when the object of the contract is the lease of an industrial warehouse. We have to take into account that when the lease of this type of property is negotiated, it is because the future lessee wishes to carry out activities that require certain quite specific physical conditions. On the other hand, the leases of industrial buildings are usually accompanied by large investments by the lessee, for which reason these contracts are usually long-term. The foregoing forces us to be extremely meticulous in negotiating the content of the contract, anticipating future situations that may be a source of conflict.

I like to think of any contract as a document that establishes the rules of the game between the parties that sign it. A regulation that must necessarily indicate to the parties the path to follow in the event of future events that may arise, whether these are conflict events or not. The foregoing makes even more sense when we are negotiating a contract for an industrial building, given the factors mentioned above (term, investment, specialty). Next, I detail some of the main aspects that we must take into account when negotiating a contract of this type:

1. Use: It is important that the use that the lessee will give to the property is clearly defined and identified. As a lessee, we will seek that the use clause on the one hand clearly identifies the activity that we intend to develop, but on the other is not too restrictive to the point that operations or opportunities that may arise as the project evolves cannot be carried out. For example: It is probable that in a contract that establishes that the warehouse will be used exclusively for product packaging operations, a conflict situation will be generated in the event that the lessee considers starting a packaging production operation in the same facilities. which uses. It is important when determining the content of the use clause, let's think about potential paths that the project can take if it evolves. On the other hand, if we side with the landlord, our interest will be to reasonably restrict the use that can be given to our property. A balanced use clause, which clearly identifies the activities that can be carried out on the property and which provides some versatility to carry out other related activities, is usually a good basis for a good business relationship. In these cases, it is highly recommended to negotiate at least one notification procedure between the parties in case the lessee wishes to carry out other activities in the leased property along the way.

2. Guarantee deposit: The guarantee deposit clause acquires greater relevance in lease contracts for industrial buildings given its typically high amount and the circumstances that may trigger its application. In this sense, when negotiating this clause, it is very important to establish at least the following: a) circumstances that activate the use of the guarantee by the lessor; b) mechanisms for guarantee replacement in case of use; c) resources that the lessee has available to avoid or monitor the use of the guarantee (notice prior to use, joint inspections, repair by its means, request for quotes); d) Policies, procedures and deadlines for its return.

3. Improvements: In industrial warehouse leasing contracts, it is quite common for the lessee to reserve the right to make necessary improvements for the development of his activity. In the first instance, the parties must negotiate and agree on the procedures for the lessee to carry out the improvements he intends. In this sense, on the one hand, the landlord will typically want to have some control in terms of authorizing and/or supervising the execution of improvements by the lessee, who for his part will want to have the least amount of procedural obstacles to carry out such improvements. In this sense, it is recommended that the parties establish measures aimed at guaranteeing, as a minimum, that the landlord is informed of the improvements and that they are intended to be carried out and their characteristics. Another point that becomes more relevant regarding the issue of improvements in contracts of this type is the issue of their payment. The parties must negotiate whether the permanent improvements that cannot be removed from the property once the contract is over will be paid for by the landlord (assuming that in principle they can increase the value of the property) or will be assumed by the lessee. Around this issue, some negotiations tend to take creative directions. For example, the parties may agree that a percentage of the value of the improvements may be deducted from the amount of the lease or, in the case of leases with the option to purchase, taken as an advance payment of the purchase price of the property in the event of a such purchase.

4. Conflict resolution: The dispute resolution clause is extremely typical in lease contracts. However, it becomes even more relevant when we talk about leasing industrial buildings given the typically high investment amounts. In this type of clause it is important not only to stipulate what the conflict resolution mechanisms will be, but also the procedures that will be followed when implementing these mechanisms. Notifications, deadlines, location and even the language under which these mechanisms will be followed is that they are well defined.

As I mentioned at the beginning of this article, the negotiation of an industrial warehouse lease involves a level of complexity that forces us to be extremely detailed in terms of its content. We must be extremely meticulous not only when negotiating the points before said, but also when regulating them through procedures incorporated in the corresponding clauses. The main objective in these cases is not to leave anything to chance and achieve a contract with clear and well-defined rules.