Signing a commercial lease is not something to be taken lightly. Finding a space that works for your business can help you prosper. You want to make sure you negotiate a fair lease agreement. Certain terms could hurt your ability to grow or hurt your business financially. Here are four questions you should consider before you sign your lease.
Is the lease term right for me?
Depending on where you are with your business, you may be seeking a short, standard or long-term lease. A long term is typically five years or more. This may make sense if your business is well established, and you know you will not need more space to grow into.
A short-term lease is one to three years, and a landlord may be hesitant to sign a short-term lease. If the landlord does, he or she may refuse to let you customize the space and will probably not negotiate much. However, if you are just getting started, this may make the most sense for your business.
A standard lease term is usually three to five years. With this lease, the landlord is usually more willing to allow changes to a space and may negotiate terms. You can also discuss including renewal options for your lease, which allows you to extend your lease past the agreed upon end date.
How much are you paying for CAM fees?
CAM stands for common area maintenance. This could be the parking lot, shared hallway or waiting area. Your CAM fees should be based on the percentage of the building you are renting. Go over this number and see that you are not being overcharged based on square footage. Make sure the landlord is not tacking on a lot of extras like marketing fees or paying benefits for the landlord’s workers. You can negotiate CAM fees, but if you are uncomfortable doing so, you may want to contact an attorney who can negotiate on your behalf.
What is included in your rent?
According to The Balance, many commercial leases are triple net. That means you pay the rent plus taxes, insurance, as well as maintenance and repair fees. You can try to negotiate a cap on some of these fees. You may also be able to stipulate what kind of maintenance and repairs you are willing to pay for. Maybe you agree to maintain certain aspects of the property, but if certain major repairs occur like the roof or the foundation, the landlord will be responsible for those repairs.
A double net lease is when you pay your rent plus property taxes and insurance. With this type of lease, the landlord is still responsible for maintaining the building and making any repairs. There are other types of leases, but be careful you know which type you are signing up for.
Can assign your lease or have a sublessee?
If you decide to sell your business later, you may want to include the lease in the sale. The location often adds value to the business. This is called an assignment of your lease. However, many contracts stipulate the landlord can terminate the lease if you ask for an assignment. This allows a landlord to renegotiate the terms. You may want to have this modified to prevent harm to the sale of your business later.
A sublessee is another business owner that operates out of your space and pays a portion of your rent. This can be a good option to help cover the burden of your rent costs or to bring in new customers. If this seems like a possibility, you should include it in your contract.
Before you sign a commercial lease, read the whole document and make sure you understand everything. Depending on the size and status of your business, you may need to negotiate the terms of a lease to fit your business needs.
