Signing A Commercial Lease?Here Is What You Need To Know First
When beginning a new business, most people go with renting a commercial property, as it is cheaper, more flexible, and hence, surely more profitable. However, even if you have stayed in a rental accommodation before and dealt with a landlord, signing a commercial lease is not the same – simply because the agreement is way more flexible and left to negotiation between the tenant and the landlord. It comes as no surprise that any agreement involving money transactions require extra attention.
Since you are the one who is paying the rent as well as wants to see a growth of your business in the space, and also since property laws give more protection to the landlord, it is your own responsibility to research thoroughly and decide the terms and conditions of the agreement.
Therefore, here in this article, we are providing you with some legal tips to make your job easier.
Research The Landlord
The landlord of the property that you have your eyes on can either be the owner of the building or merely be the owner of the space. Research his financial conditions, as him going bankrupt, or failing to pay the mortgage or rent for space can evict you; even when you pay your part timely.
Sign A Non-Disturbance Agreement
You get to know the landlord or not, it is always better to have a non-disturbance agreement signed with your landlord’s lender. This protects you from being evicted despite any foreclosure action against the landlord.
Research Laws In The Area
When you are selling a product or a service from a particular location, before even thinking of renting any property, you should research the area meticulously. You should know if the area provides you with your intended clientele, as that is the biggest point in the growth of your business.
However, even when the area suits potential customers, it may not do so for the laws. It is you who is going to run your business in the locality, and so it is you who will be convicted if any law is violated. So you should be well aware of the zoning laws, nuisance laws, as well as the environmental laws specific to the area in question and make sure your type of business can run there legally.
Talk About The Rent Amount
A landlord will calculate the rent amount based on the square footage of the space. So be aware of which areas are included in the rent – the elevator, interior walls, etc. Furthermore, talk in detail about who is going to be liable for electricity and water bills, other utilities, the security of the building, as well as the property taxes and get them as separate clauses in the agreement.
The Length Of The Agreement And Renewal
If you are just starting out, it is smart to have a short-term lease, with a reasonable renewal clause. However, depending on your kind of business, you should decide this length. Since a commercial lease does not have a standard format, it is up to you to negotiate beforehand the increment in the amount of rent after your lease period is over.
Improvements To The Property
Legally, it is imperative to have a clause about modifications to the property clearly cited in the document – if they are allowed, to what extent they are allowed, how much maintenance is required to the property and more importantly, between you and your landlord, who is responsible for the payments. Also, you should talk to him ahead of time about if the property needs to be left in the exact original condition when you leave.
Reletting Or Subletting The Property
To make sure that you are not evicted without notice, it is crucial that you discuss the terms of how the property is going to be reassigned when you move out. It is always a good idea to have the permission of subletting the space because in case you have to relocate temporarily or permanently, you can decide the next tenant, and at the same time, the rent is taken care of. In case the landlord wants to reassign the property to an entirely different party, you should give written consent about the terms of such a scenario, beforehand, while signing the lease.
Having an exclusivity clause in the agreement gives you an edge over your competitors since according to this, the owner will not be permitted to lease out premises nearby your shop to your competitors, without your consent. Nevertheless, it is important for you to specify the boundary reasonably, else it may be inapplicable.
It is even better for you if you can bargain for a competitor clause in the agreement, which means, the owner will be restricted from renting out space in the same building as you to your competitor. Either way, more profits for you!
Your landlord may require you to carry basic forms of insurance such as property and liability insurance. To be on the safe side, negotiate for rental interruption insurance (in case something like a natural disaster disrupts your business) and leasehold insurance (to protect you if your lease is cancelled for reasons beyond your control).
Look For Chances Of Discounts
In case there are a lot of suitable properties in the same area, or if the land has been vacant for a while, the landlord may be willing to provide you with concessions on the rent or a waiver of it for the first few months. Researching the area well and deliberately, yet fairly, bartering may get your expenses down. In fact, if you rent the property for a longer period, your chances of getting a discount on the rent increases.
In a nutshell, you must know what to consider before signing a commercial lease. Running a business is a huge responsibility – not only your livelihood depends on it, but so do your employees. Moreover, it is a big task to handle alone. So even when you have done the research and had considered every possibility in your mind from your perspective, it is always advisable to have a team of professional business lawyers such as PB LAW to see you through the entire process, so you are protected- come what may.