If you are a business owner, you may need to rent a commercial space, shop or office when the time comes. Commercial lease agreements are one of the most important agreements you will sign in your business life as a business owner. Before signing a commercial lease agreement, it is very important to read the agreement carefully and understand what is said. Below are some items you should consider, investigate and negotiate before you put your signature:
1. Who is the tenant? Your company or you as an individual? Watch unlimited personal guarantees. If possible, do not accept such guarantees or try to limit them by negotiating a limited guaranty also known as good guy guaranty.
2. How much is the base rent? What is included in the base rent? When do you start paying the rent? Does the landlord give you monetary incentives? Is the lease net or gross? Are there additional rent items? Are there hidden costs between the lines such as costs of reviewing your alteration plans or proposed lease assignees?
3. Who is responsible for real property taxes? Are you responsible for tax increases in the future? What about insurance? Are you responsible for the landlord’s insurance premiums?
4. How long is the lease? When will this period start and end? Do you have an option to renew if you choose to stay in the leased space when the lease ends? Do you have the right to terminate the contract at any time? If so, under what conditions?
5. Do you need to make any changes or renovations to the rented space before you start operating the business? Is the lease as is? Who is responsible for repairs to ventilation, heating or other systems in the leased space?
6. Can you transfer the lease to someone else in the future also known as lease assignment? Do you need the landlord’s approval and consent for lease assignment? Does the landlord claim any portion of the lease assignment proceeds?
7. What does the landlord require in the event you choose to bring investors or new partners to your business?
The list above could go on and on. Since the commercial lease you will sign will most likely be pages long, it is very important to read and understand it. It is not possible to get out of a contract or cancel it unilaterally by saying you did not know or did not understand the lease terms. Do your part from the very beginning – before the signatures are made. Do not hesitate to ask questions of the landlord or broker. If you have found the place you want to rent with a broker, do not give this person the task of negotiating the contract. The broker’s job is to find you the place, not to negotiate the contract on your behalf. Our advice is to negotiate your commercial contracts through your own lawyer. At the end of the day, a mistake you make or a small thing you overlook during such a negotiation can cost you a lot in the future.
