What is in My Commercial Lease Anyway?
Landlord and tenants sign lease agreements when renting property. What is included in this lease will vary. However, there are certain basics you should know about lease agreements in general. Leasing business space is a major obligation. The successes or disappointments of your business may ride based upon specific terms of your rental agreement so it is important to gain a basic understand of commercial leases and what is usually included in one. Before you approach a landlord, you should to see how commercial leases contrast from residential leases. Furthermore, before you sign anything, ensure you comprehend and concur with the fundamental terms of the rent (i.e the length of the lease term), the amount rent, and the floor plan and configuration of the physical space. It’s crucial to understand, practically and legally speaking, that commercial leases and residential leases are quite different.
The main distinctions between commercial and residential leases:
- Commercial leases are not subject to most consumer protection laws that govern residential leases — for example, there are no caps on security deposits or rules protecting a tenant’s privacy.
- Many commercial leases are not based on a standard form or agreement; each commercial lease is customized to the landlord’s needs. As a result, you need to carefully examine every commercial lease agreement offered to you.
- You cannot easily break or change a commercial lease. It is a legally binding contract, and a good deal of money is usually at stake.
- Commercial leases are generally subject to much more negotiation between the business owners and the landlord, since businesses often need special features in their spaces, and landlords are often eager for tenants and willing to extend special offers.
Before you consent to a lease agreement, you ought to deliberately explore its terms to ensure the lease addresses your business’ issues. To begin, ensure you can manage the cost of the lease and that the length of the lease makes good business sense. Additionally consider the physical space. In the event that your business requires alterations to the current space, determine whether you (or the landlord) will have the capacity to roll out the improvements.
Other, less conspicuous items spelled out in the lease may be just as crucial to your business’s success. For instance, if you expect your hair salon to depend largely on walk-in customers, be sure that your lease gives you the right to put up a sign that’s visible from the street. If you are counting on being the only sandwich shop inside a new commercial complex, make sure your lease includes a exclusivity clause that prevents the landlord from leasing space to a competitor.
Many more items are often addressed in commercial leases.
It would be a good idea to familiarize yourself with the following clauses:
- The length of lease (also called the lease term), when it begins and whether there are renewal options
- Rent, including allowable increases (also called escalations) and how they will be computed
- Whether the rent you pay includes insurance, property taxes, and maintenance costs (called a gross lease); or whether you will be charged for these items separately (called a net lease)
- Security deposit and conditions for its return
- Exactly what space you are renting (including common areas such as hallways, rest rooms, and elevators) and how the landlord measures the space (some measurement practices include the thickness of the walls)
- Whether there will be improvements, modifications (called build outs when new space is being finished to your specifications), or fixtures added to the space; who will pay for them, and who will own them after the lease ends (generally, the landlord does)
- Specifications for signs, including where you may put them
- Who will maintain and repair the premises, including the heating and air conditioning systems
- Whether the lease may be assigned or subleased to another tenant
- Whether there’s an option to renew the lease or expand the space you are renting
- If and how the lease may be terminated, including notice requirements, and whether there are penalties for early termination, and
- Whether disputes must be mediated or arbitrated as an alternative to court.