Real estate can be one of the most expensive parts of operating a business. Any missteps or oversights could have costly consequences, including loss of space. Therefore, small business owners should make every effort to avoid potential pitfalls, and this can stat before you ever sign a lease.
Avoiding problems with commercial spaces can be as straightforward as signing a lease you understand and agree with. So, before you sign a commercial lease, you should be able to answer the following question.
What Are The Terms of the Lease?
Several details should be examined regarding lease terms. You should know what type of lease it is (either month-to-month or a fixed-term lease). A short-term lease might provide flexibility, but it could also mean higher costs if the landlord decides to raise the rent upon renewal. Conversely, a long-term lease might lock you into favorable terms but could become burdensome if your business outgrows the space or if market conditions change.
It’s important to negotiate renewal options that include clear terms for how rent will be adjusted and the conditions under which the lease can be extended. The lease should also address your option to sublet the space and what options you have if your business must close temporarily.
What Are the Costs?
Rent is often just the starting point in a commercial lease. New business owners should meticulously review the lease for additional costs, such as common area maintenance (CAM) fees, property taxes, insurance, utilities, and repair costs. Ensure there is a clear understanding of how these costs are calculated and who is responsible for paying them. These expenses can significantly increase the total cost of occupancy. You should also be sure you know about fees for late payments and deposit conditions.
Are There any Restrictions That Could Affect my Business?
Considering operational details, some commercial leases include restrictions on the hours during which the business can operate. Leases often include clauses regarding alterations and improvements to the leased space. If you anticipate the possibility of relocating or expanding in the future, it’s important to understand the lease terms related to assignment and subletting.
Additionally, exclusivity clauses can protect your business from direct competition, some leases may include non-compete clauses that limit the range of products or services you can offer. If the lease does not specify these elements, you could negotiate terms to serve your operational needs better. Putting any restrictions or permissions regarding these matters in the lease makes it easier to enforce them.
Are There any Unusual Conditions?
Commercial leases can sometimes include unusual conditions that may not be immediately obvious but can significantly impact your business. A co-tenancy clause ties your lease terms to the presence of other tenants in the building or shopping center.
In addition to base rent, some leases require tenants to pay a percentage of their sales revenue as rent. Surrender clauses outline the condition in which you must leave the property at the end of the lease term. These clauses can require you to return the space to its original condition, which might include removing improvements or alterations you made.
If you are a new business owner, you should not rush through the process. Take your time, review the lease with a lawyer and be prepared to negotiate terms so that you end up with an acceptable lease agreement.
