Thing You Must Consider before Signing A Commercial Lease

People sign contracts often without reading them or considering the legal implications. Yet there are several key things to consider before signing commercial leases. The cost of having a commercial lease reviewed prior to signing is nominal compared to the cost of retaining a lawyer for commercial lease litigation. The lawyers at Kahane Law Office are happy to help you understand the legally binding terms of leases before signing commercial leases. Call today 403-225-8810.

This article only touches on some factors. Due to the variety of leases, it is very important to have your lease reviewed by a lawyer and to understand it before your sign.

What are commercial leases?

Commercial leases are not forms for getting space to use for your business. They are a contract that legally binds a property owner and the person or company that will be renting their space. Unlike a residential lease, there are often hidden or terms with financial consequences that people do not understand prior to signing commercial leases.

Practical Considerations Regarding Commercial Leases

There are practical aspects of commercial leasing that potential tenants must be aware of prior to signing commercial leases. It is important to speak to a lawyer prior to signing. A few such considerations include:

• The cost of rent may make up only a smaller portion of your monthly payments under a lease;
• Your total monthly payments may not be set out clearly. Be cautious if you only see a monthly payment listed for the base rent;
• Negotiate: most landlord expect negotiations with respect to rent, other terms and “incentives” to tenants;
• Make sure the location works;
• Understand your lease. Read it all. Read it closely. Take notes and then talk to your lawyer to go over it with you.
• Be sure anything and everything the landlord promises is in writing and actually form art of the lease; and
• Do not be afraid to find a new location if the terms put your business at risk.

Key Terms To Understand Before Signing Commercial Leases

Once again, a commercial lease is unlike a residential lease in that commercial leases have a huge range of terms. The variety, specifics and potential liability to a tenant varies to the extreme. Key terms to consider prior to signing commercial leases include:

Base Rent Payments

Base rent payment will very completely in different leases. Just by looking at a base rent dollar amount written in the lease, may not give you an idea of the actual base rent. Base rent generally refers to the rent you pay that does not include operating costs. Rents may be triple net, net net or net. The variance depends on what additional landlord costs must be paid by the tenant. In addition some rents have a base and then an additional amount owing based on the businesses sales.

Operating Costs

Operating costs can run expensive. In some cases the operating costs under a commercial lease can exceed the actual rent. It is essential for tenants to ALWAYS have a lease lawyer review and explain the operating costs owing under a lease prior to signing commercial leases. Not only do the types of expenses and/or repairs that are covered by the tenant vary, but the area that they must pay for does as well. The unit itself is clearly included but what constitutes the common area needs to be clear. That percentage is paid for by the tenant is also important as does any allowance for that percentage to change if the landlord has a vacancy. These variations can mean tens of thousands of dollars in annual “rent” variations.

Personal Guarantees

Another significant aspect of a commercial lease is any personal guarantee required. If so, all the financial aspects of the lease may be personally attributed to you in the event of default.

The Space

Tenants should perform a little due diligence and measure the space prior to signing commercial leases.

Inclusions

What is included under the lease utilities, maintenance, signage, parking, security and storage are just a few things to look out for.

Term of Lease

How long is the commitment to the space? The length of the lease is significant. Startups are concerned that a long lease includes a lot of liability. Conversely, a short lease can be expensive if the tenant invests a lot in lease hold improvements. This is also balanced with how long a tenant wants the security of fix costs as lease rates can go up once a lease expires. Further, consider renewal options. While your lease rate may change, at least your clients will know where to find you if you stay in the same spot.

Permitted Use

It appears obvious that someone renting commercial space will want to be able to run their business in it. Some commercial leases restrict the type of business that can operate in specific space. It is key to understand any restrictions before signing commercial leases.

Subletting & Change of Ownership

You may want to sell your business and / or close it. Your ability to sublet the commercial space to a new tenant or let a new owner of your business have the lease assigned to them is controlled under the contract. Not only do you need to be aware of the ability to do the above, but what restrictions and at what cost.

Who Owns / Pays For What

Making changes to the space is referred to leasehold improvements. The lease will control what you can and cannot do. It will also control who pays for what. Lastly, the lease will state who the owner of those improvements is and who needs to pay for removing them at the end of the lease.

Understand The Lease Before Signing A Commercial Lease!