Whether opening a business, expanding it or moving it to a new location, shopping for a suitable new space is important. Once you select a space, it is time to review the landlord’s commercial lease. These are often lengthy with a lot of legal jargon, but it is crucial to read through them and determine if any potential issues impact your current or long-term plans. Reviewing the contract can avoid conflicts or misunderstandings later on.
Commercial leases need to comply with all applicable regulations and laws with local and state landlord-tenant laws. An enforceable contract protects the interests of the lessee and the landlord, but there may still be legal clauses that adversely impact the renter.
8 clauses to note
The details of each property and the needs of each tenant will vary, but it is usually wise to acknowledge and analyze these clauses before signing the lease agreement:
- Term: Whether it is month-to-month, annual or multi-year, the term dictates how long the tenant is financially responsible. It may also impact the related costs of insurance coverage requirements.
- Description of premises: This is especially important when the property has more than one tenant. The description should include specific details about the space.
- Exclusivity: It may be in the best interests of a retail tenant to ensure that no other business on the property offers similar products or services.
- Escalations: This indicates if, how and when the rent for the space goes up during the lease term. It may be a time period or tied to additional costs like taxes or insurance. Some landlords may offer cheaper rent early in the lease to allow the new tenant to establish or improve their economic conditions. Longer leases may be less expensive towards the end of the contract to encourage the tenant to stay.
- Use: Unlike exclusivity, this outlines how tenants can use their space. It also may apply to sharing (or not) spaces with other tenants.
- Alterations: It is common for commercial tenants to alter or improve a space to fit the needs of the business. This clause explains the right to and process for making changes.
- Insurance: The agreement may require property, liability, rental interruption, or leasehold insurance. The two sides can negotiate this to fit the circumstances.
- Renewal: This outlines the steps for re-upping the lease. It can also protect tenants’ rights and provide leverage in unfavorable market conditions.
Does something not make sense?
It’s always best to read a contract before signing it. Still, it is often essential to have important papers like a commercial lease reviewed by an attorney who handles real estate transactions. They can highlight issues of concern or affirm that the lease is fair and binding.