Whether you’re starting a new business or expanding an existing one, signing a commercial lease agreement is an exciting and important step. It can be difficult to be patient and make sure all the I’s are dotted and the T’s are crossed, especially when you’re juggling so many other tasks and decisions. But it’s important to review your commercial lease agreement carefully, and it’s often in your best interest to negotiate certain elements. You should strongly consider relying on an experienced real estate attorney to review your lease agreement. To that end, here are 10 tips from The Farah Law Firm to help you successfully negotiate your commercial lease agreement.
1. Make sure the lease agreement includes the most essential elements
In reviewing your commercial lease agreement, make sure it includes the basics, such as:
- The base rent amount
- The rent due date
- The length or term of the lease
- Future changes in your rent amount
- A thorough description of permitted use of the premises
- An exit clause, including information on what happens if you break your lease
2. The devil’s in the details: Look for additional important provisions
In addition to those basic elements, make sure your lease agreement includes more detailed information, such as:
- Whether you must carry insurance
- What type or types of signs you are allowed to display and/or install
- Permitted hours of operation
- Whether you can sublease in the event that you will no longer be occupying the premises
- A pet clause that specifies whether and which animals are allowed on the premises
3. Check for accuracy
Don’t assume that even the most basic information in the lease agreement is correct. Double and triple check to make sure the correct address (and unit/suite number, if there is one) is listed. Make sure that your name and contact information, as well as that of the landlord, is accurate. Ensure that anything you’ve been told verbally is represented in writing in your lease agreement. And, of course, make sure that the rent amount, as well as the security deposit and any other fees, are correct.
4. Landlord vs. tenant: Make sure the lease agreement favors both parties
An initial lease agreement will almost always favor the landlord. Review all of the documents and make sure you make any and all necessary changes to ensure that both you and the landlord are equally favored. If there’s a provision you aren’t happy with, such as the fees for breaking your lease or the day of the month on which the rent is due, negotiate the details with your landlord and see if you can come to an agreement.
5. Are there CAMs (Common Area Maintenance fees)?
CAMs are fees that are paid to the landlord by all tenants. They cover the cost of things like parking lot maintenance, lighting, and landscaping—basically, any maintenance that benefits all of the tenants. Your lease agreement should specify how the CAMs are calculated. If they are based on how many tenants the landlord has, your CAMs could go up if someone moves out or is evicted. To ensure your CAMs are set at a fixed rate, they should ideally be based on the landlord’s rentable square feet rather than the rented square feet.
6. Unhealthy competition: Will they be renting to potential competitors?
If you’re opening, say, a coffee shop, you want to make sure that the landlord won’t be renting a nearby unit to Starbucks. Make sure your lease agreement contains a clause stating that the landlord will not be leasing to competitors who could steal your business.
7. Keeping out the riffraff
On a similar note, you want to be assured that the landlord won’t be renting to any type of business that could ruin yours. For example, if you’re opening a daycare, you wouldn’t want the landlord to lease an adjacent unit to a bar or an adult bookstore. Make sure your lease agreement specifies what types of tenants you can and can’t expect to have next door.
8. Crunch the numbers
Take a look at the length of your lease agreement. Most are for several years, so you’re making a big commitment, especially given the fact that rent for a commercial lease is rarely cheap. You need to be fairly confident that your business will provide enough income to pay your rent for the length of the lease agreement and beyond. Bear in mind that if you fail to comply with any of the terms in the agreement, you could face serious legal and financial consequences.
9. Understand the difference between a Net and Gross lease
In a net lease, the landlord asks the tenant to pay rent as well as a portion of the expenses for the property, including maintenance fees, insurance, and taxes. In a gross lease, you only pay rent. Understand that, with a net lease, you’ll be responsible for a portion of the property expenses, typically on a pro rata basis.
10. Turn to an experienced real estate attorney
Signing a commercial lease agreement is a major commitment that shouldn’t be taken lightly. If you want to be certain that your lease agreement is free of surprise fees or policies, turn to the real estate attorneys at The Farah Law Firm. We’ll help you review and negotiate your lease agreement so you can focus on growing your business.
