Read This Before You Sign A Commercial Lease for Your Business
An exciting step for any business is renting that first office, store, restaurant, or other space. The first challenge is finding the perfect location. The second is negotiating the lease with the landlord.
Similar to a residential lease agreement for a home, a commercial lease agreement covers the rights and obligations of the landlord and the tenant. However, that is pretty much where the similarities end.
Unlike residential tenants, commercial tenants do not have extensive rights or protection under statutory law. Therefore, if you want certain rights, it must be included in the lease agreement.
This makes it even more important to read and understand your commercial lease agreement. Also, most commercial lease agreements are written by the landlord, so they are often written heavily in favor of the landlord. As a potential tenant, you should negotiate as much as you can – or at the least the terms that matter the most to you.
Before you pick up your pen, here are some preliminary questions to have in your mind as you read the lease:
1. Are your obligations crystal clear in the lease? And more importantly, are you confident that you can follow through on them?
This includes everything from paying the rent to getting the proper insurance policies. Some leases require you to be operating consistently under a specific schedule. Will you need to include exceptions for holidays and employee trainings?
Go through each obligation and play it in your head: How will this work? How much will it cost? Is it possible or practical?
2. Exactly what is the space that you will be renting?
This is surprisingly a common source of disputes. Make sure you understand exactly where the space starts and ends. This includes specific measurements and if possible, ask for a floor plan to be included in the lease.
Also, if you will need to use any common areas (e.g, restrooms, parking area, hallways, etc.), make sure it is clearly described in the lease.
3. When it comes to the terms, do you want flexibility OR stability?
If you are a new business, you probably want more flexibility than stability. That can mean a short initial term (e.g., 1 year) with options to renew. If you are an established business, stability is probably a higher priority. A 10-year lease gives you a peace of mind that you won’t have to relocate for a while.
4. How much can you afford?
Rent is not the only thing that you might need to spend money on for the location. In addition to rent, there are:
Improvements and fixtures to the space (e.g., installing new counters)
Utilities (e.g., electricity, water, trash, etc.)
Maintenance & repairs (e.g., clogged pipes)
Insurance policies
Increase in rent based on property taxes, increased costs, etc.
Any of these can end up being a huge cost. Make sure it is clear in the lease who is paying for them. If you will be taking on any of these, make sure you can afford to pay them in addition to your rent.
5. Can you get out the lease early?
Like any contract, you want to make sure you have an “out”. You should negotiate the ability to end the lease early so long as you give enough notice to the landlord and possibly a fee. Otherwise, you may be stuck with the lease even if your business goes under.
In summary, these are just initial matters to consider when you are about to negotiate and sign a commercial lease agreement. The most important thing is that you understand what you are signing. Ignorance is a never a defense. Also, these lease agreements are almost always
drafted in favor of the landlord. So don’t agree to anything until you understand what you’re on the hook for
Disclaimer: This article is for informational and educational purposes only, it is not legal advice. It does not create an attorney-client relationship between you and Lawgood, its founders, or the author. If you need legal advice, you should hire a lawyer.
