One of the most consequential steps in choosing a physical space for your business is negotiating a favorable lease. There are many components of a commercial lease, and a bad lease can turn a great opportunity into a business-killer.
Perhaps you’ve found exactly the space you want to establish your business or expand an existing business into a new market. You have looked at the area, identified the advantages and disadvantages of the location, the cost of leasing the space, and the advantages and limitations of the space itself. Even if all of these aspects are in line with your needs, a bad lease can spoil them.
Before entering into any lease agreement, it is wise to scrutinize the language of the agreement carefully and commit to negotiating terms that you believe are not in your interest. You may have to compromise on some of these issues, but you don’t want to be surprised by some aspect of the agreement later on, when it is too late to walk away.
Key points to consider in a commercial lease
Depending on the nature of your business, you may need many different things out of a space, or may be relatively flexible as long as it checks a few simple boxes. In any lease, however, you must understand the monthly and annual cost of the space, including extra costs that may not be clear at first glance.
A landlord may ask for additional payment to address common areas, property taxes, maintenance and other concerns. The agreement likely also includes language outlining rent increases. The clearer your understanding of all of these costs, the more wisely you can make your decision when the time comes. Often, vague terms in a lease agreement indicate that the landlord may either take advantage of the situation, or did not take the time to make a detailed lease for the specific space.
It is also important to understand the freedom that a tenant has to make changes to the space or to the uses of the space. If a lease restricts alterations that would make your business operate more efficiently or draw in more customers, for example, then this is important to consider.
The length of the lease is also important. In general, a longer lease locks a tenant into the space for a significant amount of time, typically at least a year or several years. At the same time, longer leases may entice a landlord to agree to other compromises in rent, liabilities for the tenant or approving alterations.
Build a plan for success
Signing a commercial lease a big step, and it deserves proper time and attention. By using the legal tools and guidance that you have available, you can evaluate a lease agreement carefully and potentially avoid significant conflicts and losses in the future.