Nine Important Items to Consider When Negotiating a Lease

Most business owners execute long-term leases to secure a place of operation. Usually, the business owner is presented with a preprinted form by the landlord and told to sign. And most business owners sign the document “as is.” This does not mean that they did not review it, but it usually means that (a) they did not know what to look for when reviewing the lease or (b) they believed that they had no ability to change any of the terms.

If you absolutely need to locate in a particular space and there is a very high demand for the space, then you may not have much ability to negotiate the terms. At a minimum, however, you need to understand the terms of the lease so that you can operate accordingly and make a fully informed decision regarding the space.

The following are ten provisions of a lease to which you should pay particular attention:

1. Authorized Use. Somewhere in the lease the landlord will specify what type of business you may operate at the site. Make sure this description is not too restrictive.
2. Term of Occupancy. The term of the lease may be for three years, five years, ten years, etc.  If you are a fairly new business, signing on for a long-term lease may leave you financially obligated even if your business does not succeed. If you are an established business, it is very expensive to move and a short-term lease could end up being very expensive if you cannot successfully negotiate a new lease to stay. We can help you negotiate a term that will work perfectly for your business and not leave you financially devastated.
3. Rent. Most people simply look at the price per square foot when reviewing a lease or when comparing various spaces. “Rent” is much more complicated these days.  You need to determine whether the rent quoted is “fully loaded” or “triple-net.” It will make a big difference in your bottom line.
4. Evening and Weekend Use. Some building are automatically set to turn the heat/air conditioning off on Friday afternoon and turn it on Monday morning. If you work evenings or weekends you want to make sure you can individually activate the heat/air conditioning.
5. Signs. Is advertising important to your business? Do you want to have a large sign on the building for the public to see? Make sure your lease is not too restrictive.
6. Factors that inhibit business. When reviewing a lease ask yourself the following questions: Is the parking adequate and convenient for my customers and employees? Are other tenants using the building in such a way that detract from my use of the building? Are there any obnoxious noises or smells that would make the working environment uncomfortable?
7. Tenant Improvements. If you are planning to do major work to your new space, determine whether the landlord will pay for any of the improvements. Also determine whether you will need to comply with the Americans with Disabilities Act, which could significantly increase your building cost. Will you be required to upgrade building systems?
8. Maintenance. Most commercial leases require the tenant to perform their own maintenance of the facility. Beware of the lease that requires you to also maintain the structural elements of the building, e.g., roof, walls, and similar, which should be the landlord’s responsibility.
9. Inspections. Do not assume that the building or the space you will occupy is in good condition. Hire a contractor to look over the place and tell you about any defects. Make sure you tell the contractor how you will be using the building, especially if you have special electrical or plumbing needs.

While there are many more provisions of a lease that need to be reviewed, the above are some of the major items and the ones that most commonly cause problems after the lease is signed. As with any legal document which will have a significant impact on your business, you should have us review it prior to signing. A small investment up front can save you thousands of dollars in the long run.

March 4th, 2011 Posted to Real Estate / Landlord Tenant | Comments (2)