What to Look for in a Business Lease Agreement

While the basic concepts and terms of a commercial lease are similar to those of a lease you may have signed for an apartment, there are still differences between commercial and private leases that you need to be aware of. Residential leases are often heavily regulated with certain conditions that cannot be changed by law – even if both parties agree to waive those conditions. On the other hand, commercial leases have virtually no restrictions beyond basic contract law. Ask yourself these questions to make sure you know what you`re getting into. Many commercial leases include an arbitration clause to resolve this type of dispute. An arbitration clause requires the parties to use and accept an arbitrator`s decision instead of taking legal action. A commercial lease is a contract, so it must contain certain important elements and information for it to be valid and enforceable. At the very least, information about rent, deposit, rental period and any additional costs the tenant may be exposed to should be clearly defined in the lease, Khanna said. Borch and Dan Bailey, president of WikiLawn, listed a few key terms small business owners should know about commercial leases. The list doesn`t include all the possible conditions you may encounter in a commercial lease, but it`s an overview of the ones you`re most likely to see.

Keep these points in mind and your business will soon find the perfect new location for your business. One of the most important tasks that every business owner faces is signing a commercial lease. As commercial entrepreneurs, we have seen a lot of bad leases. Here are some areas that we should pay special attention to if you are in the business rental market. “If a residential lease has a fixed term, a commercial lease is often negotiable and can have a longer or shorter term depending on the conditions set,” said Allan Borch, founder of Dotcom Dollar. “Commercial leases also have less legal protection because consumer laws that apply to residential leases do not cover commercial leases.” However, commercial owners often quote a price for the actual rental of the property and then accumulate additional costs such as landscaping, security, garbage collection, or housekeeping (if in a community facility) that can add up quickly. These are often collectively referred to as “IMRs” (taxes, maintenance and insurance) in commercial leases. In addition, you will often find buried in the fine print of many commercial real estate leases that while the rent does not change or change without the tenant`s first right to object to the continuation of the lease, the additional fees may increase at the landlord`s discretion with little or no warning. In short, any change must have the tenant`s signature either as a change or as an option that he accepted in the original lease. The Americans with Disabilities Act (ADA) requires that commercial premises open to the public be accessible to persons with disabilities. The requirements of the law depend on the size of the business, the type of business and the age of the building or the time elapsed since its last renovation. Rent is just one aspect of a commercial lease.

Secondary conditions can have a significant impact on the amount you pay to the owner each month. Things like maintenance costs, rent increases, improvement reductions, unplanned repairs, and deposit services can increase your rent from hundreds of thousands to thousands of dollars a month. Think like a lawyer, or even better, hire one to protect your interests. – Gary Beasley, Roofstock Once you`ve established basic pricing and term structures, it`s time to dive into some of the less obvious details. While your lease probably varies from state to state, here are some good examples of laws to consider before signing a lease: Call Option. This clause states that the tenant has the right to purchase the property at an agreed price at any time during the rental. This clause is not mandatory, but it does not hurt to include it. The clause may also state that the tenant does not have the right to purchase the property during the term of the lease. Either way, it`s good to have it in writing. Gumersell also said that one of the most important aspects of research that is often overlooked is learning more about the owner and builder.

Sometimes your direct owner may not be the true owner of the building. Either way, you`ll learn as much as you can about the owner and builder. They enter into a business partnership together, so make sure you have an idea of who they are, their financial situation and whether they are offsetting their payments. A commercial lease is more likely to expire at the end of the period, but can be extended for an additional period. Signing a lease is an important step for any new business owner. Whether you`re opening a business, moving into office space, or renting manufacturing facilities, at some point you`ll likely need to reserve a spot for your business. The world of commercial real estate can be complicated and it can sometimes take years to find the space you`re looking for. In a commercial lease, the landlord is usually responsible for routine maintenance such as HVAC repairs or landscaping. However, the rental agreement may transfer this responsibility in whole or in part to the tenant. “You have to plan a lot when you move from room to room,” said Walter Gumersell, a partner at Rivkin Radler.

“Confirm the conditions you will take.” For example, add clauses on rent, deposit, lease term, and space usage. “They want it to be as broad as possible,” he said. Conviction. This clause is often overlooked, but it is important. It determines what happens if the rental property is taken from the owner by a government agency for public use, either by conviction or by eminent field. Verify that the name and address of the property are correct. If you sign a commercial lease and have a business unit like a business entity or LLC, you want to name the company – not you personally – as a tenant. This protects you from any liability in the event of a problem. Even if the landlord created the lease himself, don`t assume they did everything right. Check the start date, end date, rent, rent escalation conditions and any other special conditions you have negotiated.

And most importantly, make sure you know what you are obligated to do under the terms of the lease. What is the owner obliged to do? Can you cancel the lease? “An emerging brewery, for example, would be wise to get exclusive permission to lease space within a community market to reduce opportunities for competing sales,” Khanna said. “Without exclusive permission, another brewery could rent space in the market and try to attract business from the same customer base, significantly reducing the profits of the first brewery.” Improvements. This part of the commercial lease specifies what types of improvements and upgrades can be made to the space and who is responsible for the costs. Many aspects of this section can be negotiated. While there are many things that go into a commercial lease, you don`t have to reinvent the wheel. Click here to create your commercial lease and customize it according to your needs. Disputes over rental terms often arise when landlords and tenants cannot agree on who is responsible for a particular item.

Often, this happens when a provision of the lease was too vague or did not clearly contain something that a party thought they were doing. Some states have a limited list of owner disclosures or other required rental requirements. These are usually limited to important public health and safety issues such as asbestos warnings or the use of property for illegal purposes. But the nature of the guarantees can be negotiable. Consider providing a warranty for only part of the lease term or negotiate a warranty that only applies six to 12 months after your cancellation. As the old saying goes, “Don`t wait to buy real estate, buy real estate and wait.” After years of economic ups and downs, people are looking for a solid investment that will build equity. Residential real estate continues to be one of the strongest investments. How exactly can you protect yourself? A solid lease is a great place to start.

Read on to learn how to design a solid lease for residential real estate. The main exception would be if the lease itself contains some sort of option. For example, the landlord could add a clause that allows them to terminate the lease when they sell the property. In addition, “commercial leases are less regulated and offer less protection than residential leases,” Khanna said. “They tend to be longer and offer greater flexibility in negotiating terms than residential leases.” Finding the right location for your business will be a long and stressful process. Accept this from the beginning, and you will do well. Choosing the right location for your business can be a deciding factor, so you need to make sure you take the time to do it right. Resist the urge to settle for a non-optimal building just to complete the process. Even if you`re willing to sign a lease, don`t.

Take an extra day, think about it and make sure absolutely. A good owner will understand. Before you sign a lease, be sure to include a room that breaks down all of the landlord`s expenses (rent, rent percentage, management, administration, CAM, insurance, and advertising) for your space. Before signing a lease, hire an experienced commercial real estate lawyer who can help you determine if the terms of the lease are fair or if the lease could be costly for your business. – Pamela J. Goodwin, Goodwin Commercial Yes, you have to read it – word for word.. .