courtesy of Ron Burg, Barrett Properties, Dalton GA:
Leasing commercial office space is a large expense for new and expanding businesses, so doing your due diligence is important. Consider the following tips for negotiating a commercial Lease for your small business.
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The Lease
The first negotiable points to consider are lease term and Rent. Small businesses should consider negotiating one to two year leases with the option to renew. Consider addressing rent increases over the life of the lease and renewal options to avoid being charged with an unexpected rent increase. Avoid clauses saying future rent will be negotiated later or that an appraisal process will determine the new rent. Be sure the landlord has some exposure in the event of a lawsuit. Avoid clauses that say, if the landlord loses a lawsuit, its damages will be limited to its equity in the mall. Under such a clause, if the mall is fully mortgaged, the landlord is not responsible to pay any damages.
Costs and Additional Expenses
Find out what expenses you may incur beyond your monthly rent. Commercial Real Estate landlords can add additional expenses into the lease, such as maintenance fees, upkeep for Common Area Maintenance (CAM), etc. Utilities are usually the responsibility of the tenant; how are these measured? Are they divided based on square footage or metered individually? Ask to see these policies and fees, as well as examples of typical monthly costs for tenants.
Repair and Maintenance
Commercial leases vary regarding stipulations for maintenance and repair— some specify that the tenant is responsible for all property upkeep and repairs, while others assign responsibility to the tenant for systems like air conditioning, plumbing, etc. Read your lease closely, perhaps with the assistance of a commercial real estate broker or attorney who is well versed in commercial real estate law, to determine your responsibilities under the lease you are considering.
Protecting Your Business
Consider investigating and negotiating some add-on clauses to your lease to protect your business interests. One clause is a sublease, which builds in some flexibility and allows you to sublet your space to another business. Another clause is an exclusivity clause, which prevents the landlord from leasing another space on the property to a direct competitor. A co-tenancy clause can protect you from a loss of customers if a retail property’s anchor tenant closes business and the landlord does not replace the anchor tenant in a quantified time period.
Default
You can take steps during the lease negotiation process to protect yourself in case you default on your lease payments. In case of your default on the lease, what does the lease state will happen? Will you immediately be locked out? Will the landlord begin eviction proceedings? Can you negotiate more time? Could you pay only the current month’s rent instead of the remaining amount owed on the lease?
These tips can help you determine which commercial space is the right one for your business, and help you negotiate a lease that offers you the best terms available.
