One of the most common transactions in business is also one of the most important, and legally complex: leasing space. Almost every business needs space for some purpose: offices, sales floor, manufacturing, warehouse, storage, parking or other areas. Most space is leased, not owned. Typically a new lease is signed every few years. Yet many business people are uncomfortable with negotiating a lease for commercial space. Here are some tips for leasing commercial space.
Get space and features that meet your needs
Having the right space may be more critical than saving on rent. Size, suitability for your use, zoning, access, parking, ability to expand, and a cooperative landlord are elements you need to consider as carefully as the amount of rent.
Don’t view a “standard form” lease as automatically fair to you, or unchangeable
There are many different “standard form” leases. Many strongly favor one side. The proposed lease, even if pre-printed, can be changed. Paragraphs can be crossed-out. Edits can be handwritten. New pages, written by you, can be added with terms you need.
Though any lease can be negotiated, this does not mean you’ll be able to change every provision. Make a list of the most important changes you need. If the other side won’t budge, then pass on the property. With patience, there is almost always another property you can lease.
Key terms to focus on
Some key terms to focus on are: how long the lease will last; renewal options; rent; how rent is calculated; how rent may change over time; other costs you may be charged; who has the duty to make repairs; assigning and subletting; signage rights; restrictions on competing businesses; and any other duties the lease imposes on you.
Regarding costs, make a list of all costs, charges and payments due under the lease, even payments that are only possibilities. Apart from basic rent, there are charges treated as additional rent, common area charges, percentage increases, utilities, taxes and indemnification of the landlord. Make sure you understand when any payment is due, how it's calculated and what may make it rise. If there is a security deposit, the lease should say if it earns interest and when it will be returned.
Make sure the lease states clearly how long it lasts, if a party can end the lease early, whether there is a right to renew, and the required contents and timing of notices to be given. If deadlines are too strict, negotiate for more time.
For space you will use for business operations, sales, manufacturing, or warehouse, make sure the lease permits all uses you plan to make.
Try to negotiate for the right to assign the lease or sublet your space. This will protect you in case your business needs to leave the space before the end of the term. An assignment lets you transfer the lease to another party, while a sublet lets you rent the space to someone else even though you are still responsible for the lease.
If during the negotiations the landlord verbally agrees to let you put up a sign advertising your business, make sure this is written into the lease.
If you are in a business and don't want competing businesses next to yours, put this in the lease. This will prevent the landlord from renting to a business similar to yours.
There are also many other terms the lease will cover. Any of them can be important for your lease. Take the entire lease seriously as it is a legally binding contract. You are obligated by all its terms and need to read and understand all of it before signing.
Don’t automatically sign a personal guarantee
If your business has a good history, with enough income to operate, you can avoid exposing your personal assets to risk by persuading the landlord no personal guaranty is needed. If you are willing to sign a guarantee, ask that it be limited in time or amount, or even limited to cover only some of the duties in the lease.
Get a lawyer's help
Get a lawyer’s help, especially if you don’t have patience or time to read the full lease. But even if you read it all, some terms that seem clear may have different meanings than you expect. Or the lease may be silent about something important that only your lawyer will think of. So it is wise to ask your lawyer for help on the lease. Getting legal help before you sign the lease is much better than having to get legal help because of a dispute arising from the lease.
Start the process early
Start your search for property, and start the lease review and negotiation process, as far in advance as you can. This gives you more time to learn about the market, what properties are available and evaluate choices. This also gives you strength in negotiating, because you don’t need the property yet, so you have time to look further if necessary.
Talk with other tenants
Talk with tenants elsewhere in the building or in other properties owned or managed by the same landlord. Other tenants may give you insight about issues to be aware of in dealing with the particular landlord and property.
In negotiating, you can get more concessions if you ask in ways that help you and also consider the other party’s interest. For example, if you want rent lowered, you might offer to keep the property in good condition. If you want the landlord to not require a personal guaranty, you might offer to buy more liability insurance.
Getting the right space for your business is vital. Following these suggestions will help you get a property that is right for your business, on terms that work for your company.
Contact an attorney at Triscaro & Associates today. Please call us for all your legal needs. We offer a full range of legal services to individuals, families and businesses, including personal injury, estate planning, real estate, family law and business matters. We are dedicated to providing the highest quality legal services at a reasonable cost.