For most business owners, rent is one of the most significant expenses. If you are about to sign your first commercial lease or are in the process of buying a new location or relocating, there are a few things you should keep in mind before signing the lease.
Not all two commercial leases are the same, and there is a chance that you could be paying more than you should. To prevent that, below are seven factors to consider before signing a commercial lease and an excellent resource you can reach out to for more assistance.
- Understand the Binding Nature of Your Commercial Lease
This should go without saying, but many business owners don’t quite understand that their commercial lease contract is legally binding. If your business struggles and you need out of your lease, you cannot just back out.
If you signed a five-year lease for $4,000 a month, you basically signed for a $240,000 contract. Make sure that you look at your leasing contract knowing that whatever you sign is binding, and the other party has the right to take legal action against you to recoup their losses.
- Review What’s Included in the Lease
If a landlord tells you something like, “We can address that after you sign your lease,” you may want to consider another location. If you have genuine concerns about the lease and what is listed, you should be able to communicate that with the landlord openly.
Approach your lease thinking that if it is written in the document, they can use it and will enforce it. If the landlord makes you a verbal promise, make sure you get it in writing and add it to the lease.
- Lookout for CAM Charges
Typically, the tenant of a commercial property takes responsibility for some of the landlord’s overhead. These overhead expenses are called Common Area Maintenance (CAM) or operating expenses. Most landlords pass as much of these expenses down onto their tenants to handle.
Examples of CAM charges:
- Holiday decorations
- Property taxes
- Insurance premiums
- Parking lot
It would be best if you negotiate limits on these expenses. If your landlord knows you have obligations to cover those overhead expenses, they may just expect you to pay for them without any limits.
- Beware of the Square Feet
In most commercial lease agreements, the annual rent is determined by a price per square foot. Tenants usually take the person’s word for how big the office space really is, but sometimes the landlord incorrectly lists the square footage.
For example, let’s say you find a 1000 square feet building space at $5 per square foot. That would cost about $5,000 a month. If the landlord were to exaggerate the square feet by about 200 feet, you would find yourself paying $1,000 more a month for only 800 square feet.
- Review the Use Clause and Exclusive Clause
A use clause tells the tenant what things it can’t or can use the property for. For example, your lease may state that you can only use the space as a restaurant. Even more so, they can further dictate that you only use the space as a pizza restaurant. Depending on your lease, it can even dictate your business hours and what you can and can’t serve on the menu.
Exclusive causes are often in most shopping center leases. This allows a client, typically a larger client, to corner the market on a particular product or service.
For example, if you run a hair and nail salon in one shopping center with an exclusive lease, the property manager cannot lease another hair and nail salon in the exact center. This is to give the company exclusivity and to keep down their competition.
If you do receive an exclusive, but the property manager or landlord does not adhere to your contract, you can sue them. In this case, make sure that you have a provision in the lease contract that allows for a fixed amount of damages to be paid to your business in the event that they breach the agreement.
- What Is Near the Commercial Space?
Every commercial center has its own personality and quirks based on the surrounding stores. Before you sign your leasing contract, be sure to ask yourself a few questions:
- How is the traffic in the plaza?
- Is this area prone to loitering?
- Are there unloading or loading issues due to other commercial tenants?
- How long does the average person stay at the center?
Another great thing to do before signing your lease is to scope out the area during the day and at night. This helps you gauge how the traffic and activity are at those two points of the day.
- How Responsive Is the Landlord?
Commercial leases often span over multiple years, and they average about five years, depending on the location and conditions of the market. Because you spend so much time in this space, you will want to ensure that you and your landlord are a good match. Before you sign anything, ask yourself, “how responsive is the landlord to my concerns?”.
Other questions to ask yourself:
- Is there adequate access for deliveries?
- Are the trash cans adequately taken care of?
- Are the plaza’s signs, parking lots, and lightings well maintained?
You can answer some of these questions by asking other tenants about their experience in the plaza, or you can ask your landlord yourself. When speaking about the lease with the property owner, gauge how attentive they are to you, don’t sign anything if you have any doubt.
Protect Your Business Interests
Signing a commercial lease is a huge commitment and can potentially put you and your business in an uncomfortable legal issue if you fail to look over the agreement properly. To ensure that you protect your interest, you may want to reach out to a reputable business attorney to review, edit, and negotiate your commercial lease.
When you do this, you can potentially save a lot of time and money and protect yourself in the long run. If you are ready to work with someone who will protect your best interest, contact us.