So, you have found commercial real estate and you are excited to move in and expand your business. Remember, renting a location for your company is a major decision and responsibility. In many cases, the success of your business hinges largely on the terms of the lease. Before you talk to the landlord, it is important to understand the basics of commercial leases, and how to fully evaluate the terms before signing.
Different from residential leases
Maybe you have rented a home before, so you are familiar with the structure of a lease. Even so, it is important to realize that commercial leases are significantly different. The main distinctions include:
- Custom forms: Most residential leases adhere to a standard form, but every commercial lease is unique and customized to the preferences and needs of the landlord. Therefore, carefully evaluating every detail is crucial.
- Fewer consumer protections: Consumer laws that cover residential tenants do not protect commercial tenants. For example, there are no privacy protection laws or limits on security deposits.
- Flexibility: Owners of commercial properties may be willing to negotiate with you about special features that you need for your business.
- Legally binding and long-term: Like a home lease, commercial property contracts are enforceable by law and cannot be easily changed or broken. However, rather than tying you to the terms for a year, or even just one month at a time, they are often in effect for five years.
Now that you understand these core differences in structure, you are ready to move further into the details of a lease.
You must study the terms of a commercial lease carefully to ensure it meets your needs, and pay close attention to the following:
- Rent amount and escalations
- Renewal options
- Security deposit and conditions for a return
- Whether it is a gross or net lease
- Conditions for termination, such as notice requirements and early termination penalties
- Responsibility for repairing and maintaining the premises
- Specifications regarding the space being rented, including common areas like rest rooms and hallways
- Dispute resolution, such as through mediation, arbitration or litigation
If it does not benefit you to come to an agreement on these factors, you should consider negotiating with the landlord for terms that meet your needs.
Keep the above information in mind as you pursue property for your business. Even with this advice, the nuances of commercial leases can be complicated, and it does not help that the laws are frequently changing. If you have questions about a lease on a commercial property, including how best to negotiate terms, consider consulting a real estate law attorney.