10 Things You Should Know about Commercial Leases - Davis Law Office

10 Things You Should Know about Commercial Leases

10 Things You Should Know about Commercial Leases

Signing a business lease is just plain scary—you often have to sign for multiple years and the monthly rent is normally higher than your personal housing payment. Eek! But knowing what questions to ask and what to look for in a commercial lease can save you—and your business—big time.

In addition, almost all of our clients with lease problems come to us after the lease has been signed. We love to help protect small businesses from problem leases—below are some things to look out for, including the major elements of a lease, negotiating a lease, and your rights and responsibilities as a tenant.

  1. Commercial leases are different than residential leases. In short, commercial leases offer fewer protections, have much longer lease terms, and provide more opportunities for negotiations.
  2. Most leases require a personal guaranty. That’s you, not the company—which means that your personal financial assets are on the hook for anything related to the lease. This is something that lawyers can negotiate, and often do—it’s harder for unrepresented entities to negotiate this out of a lease. If you have a business partner, make sure that there’s a guaranty for you both.
  3. Common Area Maintenance (CAM) charges will impact your total monthly cost. This is an additional rent, charged on top of base rent, and is mainly composed of maintenance fees for work performed on the common area of a property. The landlord should be able to give an estimate, but asking them to also cap how much they will go up is a good idea.
  4. Tenants are generally “jointly and severally liable.” This means that all tenants are liable, but any one tenant could be held accountable for the entire balance of rent or any other charges or judgments that stem from the lease agreement. If you’re moving into a new space, research how long the other tenants have been there and think about longevity as one lens through which to view risk tolerance (e.g., an entire building with all brand new startup companies or a long-established building with many long-term tenants).
  5. The lease terms should reflect your needs. Consider your needs first and think about subleasing needs, like whether you’ll need more space in the future or a different set-up as your business grows.
  6. Landlords offer varying degrees of hands-on help. Some of them take care of it all and others don’t, so you’ll want to know what you’re getting in to. Make sure you have contact information beyond the notice address contained in the lease and that you know the protocols for after-hours issues.
  7. You should inspect the premises before signing the lease. Absolutely require an inspection before signing—you never know what you might find when you’re handed the keys. Take photos of any existing damage and document any verbal agreements discussed during the walk through.
  8. Tenant improvements are often an option. This saves you money on the buildout, so don’t let landlord act like it’s the world’s biggest favor—they depreciate it on their taxes.
  9. Your landlord’s reputation is as meaningful as the lease terms. If you have heard they are awful, they won’t be different with you—so ask!
  10. You may be required to leave improvements with the premises. This is especially true in large buildouts and restaurants—so get specific in the lease! Make sure that any special equipment that is foundational to your business is not left to interpretation.

If a commercial lease is in your future—congratulations! That means you’ve taken the first step in growing your business and we couldn’t be happier for you. We’re here to help you through it if you need us—just shoot us a message!

One response to “10 Things You Should Know about Commercial Leases

  1. Thank you for explaining that most leases require a personal guarantee that their financial assets are in good condition and on the hook for anything relating to the lease. My sister and I have been looking for a place where we can start up our business. We aren’t really sure how to find the best lease for us, so we will probably go to a professional to help us out, thanks for the tips!

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