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Understanding Commercial Lease Agreements
  • 23 Oct 2017
  • 6:52

One of the best ways to feel fulfilled in life is to start your own business. You’re your own boss, you call all the shots, and you have the opportunity to build something from the ground up. But in addition to figuring out a name, registering it with the State, obtaining funding, and finding that perfect location, if you’re renting, you’ll need to understand commercial lease agreements.

  1. What are your specific business needs?Are you opening a restaurant and need a license to serve alcohol? Do local regulations allow you to do so in the leased space that has caught your eye? Are you planning on remodeling for better space usage and to express your company’s brand? Would you have a right to make those modifications? Whatever your business needs, make sure you’re covered, and always include it in the contract.
  2. What’s the term of the lease?

    Are you planning on having contractors show up on the first day to start working on your location? If so, are you clear on what’s the actual first day of the lease? Sometimes, it’s a clear date, such as January 1, 2018. Other times, it’s ambiguous: “The term of this contract shall commence 30 days after [such occurrence]”. Know this lease commencement date before you schedule everything around it. Understanding the dates and timing of various terms is also essential in regards to the end of the lease term.  For example, your lease may include a right to renew for a second term but only if you exercise that option by giving notice 90 days  in advance of the date of expiration of the initial term.  You need to calculate the dates and then enter them into your calendar as a “tickler” to remind you to take action.

  3. What’s included in the rent?:

    Is there a communal conference room in the building? Will you have access to it? What about parking spaces? Utilities? Trash removal? How about real estate taxes and the cost incurred by the Landlord to insure the building; will you be charged for your share of those expenses in addition to rent? Look for terms like “Additional Rent” and “Common Area Maintenance” where these extra fees are identified. Be sure to note too how often rent and additional rent can be increased and the notice requirements for those increases. Is there a cap? If there isn’t a cap, is there a provision that would allow you to get out of the lease if your all-in costs increase by more than X percentage?

  4. Exclusivity:

    If you’re renting space at a strip mall, the last thing you need is for a competitor to set up shop two doors down from you. Make sure to address this issue with your landlord by requiring an exclusivity clause in the lease.

  5. Insurance issues:

    We live in a litigious society. This is why even coffee cups have warnings specifying that their contents are hot. By the same token, if a person gets hurt in your business premises, you’ll be exposed to legal liability. So will your landlord, because at the end of the day, the Plaintiff will try to go for the deepest pockets; and the more, the merrier. Both you and the landlord should have different types of insurance, but you’ll also want to verify whether your lease agreement requires you to have an onerous amount at great expense, and you need to know whether you would be indemnified by the landlord if you are sued for something that should’ve been the landlord’s responsibility.

  6. Repairs and Maintenance:

    What are your responsibilities besides paying rent? Do you have to take care of ordinary repairs? What if the AC breaks down completely and has to be replaced; who pays for an expensive new commercial unit? How about plumbing, structural repairs and the roof?  Before you sign, read every term carefully to make sure it is not one sided, all for the benefit of the owner.

Every business is different, and depending on their nature, they may need specific terms that another business might not need. Never sign a contract before fully understanding what you’re getting into. Don’t skim through the lease. All of the terms are important, and addressing potential issues before you sign may save you from a significant financial loss in the future.

At Hunter Business Law, we can review the terms of the lease with you, explain what is customary versus unreasonable, and ensure that you are entering a lease that you fully understand and that meets your needs.

Contact us and feel confident about signing.

This Blog was written by Hunter Business Law Founder, Attorney Sheryl Hunter. View her profile HERE.

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