Many commercial small businesses need a physical location to do business from. If you want to start a small restaurant, finding a good location with sufficient street exposure, off street parking, minimum distance from schools or churches or daycare facilitites is just the start of the process. If you though finding the space was a tough process, now you have to negotiate with the property owner on the details of your lease. Most commercial leases run well over twenty pages of fine print.
The worst mistake a small business owner can make when negotiating with a landlord for lease terms is to not talk to an attorney. Many business owners will assume the landlord is reasonable. That is never true. Landlords make money by tying up every possible legality in their favor in a lease, and holding you responsible for every dime. It is a sad reality in our society and for the most part we sign contracts without reading them, and that we fail to make even a small attempt at understanding what it is we are agreeing to do or not to do. When you negotiate a lease for your business it is important to make certain that you are taking into consideration the responsibility you are assuming.
If you have ever leased an apartment you probably recall that the landlord was responsible to keep the unit habitable. The opposite is expected in a commercial lease. Typically, a lessee will have to make most or all of the required repairs to commercial premises. However, if the unit is in a new shopping center, many landlords will offer a buildout allowance, and a short period of up to 90 days free rent to allow you time to complete the buildout. But, that may not be enough time to get permits, hire architect and contractors, and get the work done. If you are willing to sign a long-term lease you will want to use your bargaining power to see if the landlord will make necessary improvements to the property. At the Strong Law Firm we can help you outline the specific expectations of both parties. You will also want to get in writing how rent is assessed and when increases may occur under a long-term lease.
Another major component of a commercial lease is a personal guarantee that may be required on your part in order to secure the premises. As a business owner you need to understand that it is usually in your best interest to separate personal liability from your business. It has become increasingly difficult to obtain a commercial lease without giving the lessor a personal guarantee to make good on your contractual obligations in the event the business cannot pay. If this seems to be the case for the commercial location you have selected you need to consider whether this is a commitment you are willing to make. Also if your business has multiple people involved in the management structure, it might be in your best interest to ask multiple people to share in our personal guarantee to spread your risk. You can also ask for limitations on the guarantee over a set length of time, or based on an approved sale of the business to a new buyer. As a business attorney, we are able to negotiate the specific definition of a personal guarantee and limit the scope of when a personal guarantee becomes effective.
Other questions likely to come up may include required insurance coverage limits, duty to repair common areas or HVAC equipment that may be inaccessible, CAM (common area maintenance passthrough expenses) or taxes on the property. Generally speaking, smaller centers or older projects may give more incentives and concessions to new tenants to keep their older properties occupied. Newer properties carry higher rents and better buildout allowances.
If you are starting a new business, negotiating a commercial lease can be a very difficult task. You should never want to enter into a template agreement and just sign the dotted line. Signing a business lease can come back to haunt you later if you do not think about the specific terms and clauses in the agreement.
At the Strong Law Firm, we are happy to sit down and help you with all your business needs. In many cases we offer flat fee affordable rates. It is always more efficient to hire an attorney during this process than having to pay an attorney to litigate a dispute later.