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Make sure you understand a commercial lease before signing it

On Behalf of | Dec 5, 2017 | Real Estate Law

Once you know that you are going to start a business, you have to decide where you are going to house the business. For some, finding a space to lease is the best option. If you are considering a commercial lease to have a space for your company, you need to make sure that you understand the lease before you sign it.

Commercial leases differ greatly from residential leases, so there are specific points that you need to be aware of.

Lease payment terms

The lease payment terms are one of the most important things you need to review. This includes information about how much you are going to pay and how often. This term clause will likely also include information about late fees and what happens if you don’t pay the rental payments on time. It should also include a lease term, which is how long you agree to make the required payments.

Triple net inclusion

Many leases include what is deemed as the triple net. This means that you are responsible for paying the rent included in the lease terms, as well as the common area maintenance (CAM) fee and a portion of the property taxes. As you can imagine, these two extra expenses can add a good amount to the payments you must make. You might ask the landlord to set up specific points. For example, you can negotiate a cap on the CAM fees each year. This could prevent astronomical increases that are difficult for you to cover.

Names on the lease

Because the space is a business space, you need to make sure that your business, not you, is the entity named in the lease. Beware that you might be asked to personally guarantee the lease. This would mean that you are guaranteeing that the landlord will get the money due. You might be able to negotiate having to personally guarantee only a specific portion of the lease.

Use and description information

Make sure that you read the use clause and the description clause carefully. Both can directly impact how you are able to use the property for your business.

For example, your lease might prevent live animals from being on the property unless they are service dogs. This isn’t a problem for many companies, but it could be a problem if you are selling pet goods.

The description lets you know what parts of the property you can use for your business. This might include specific parking locations or shared spaces.

It is usually a good idea to have someone outside of the transaction review the lease. This can help you spot points that you missed on the review.