What are the most important parts of a commercial lease?
Commercial leases often contain complex terminology not typically used in everyday business or life. Every commercial lease is different, but some of the most important lease components include the following:
- the length or term of the lease;
- renewal options, if any, held by the tenant;
- the price per square foot, including any increases over the life of the lease;
- clear description of the dimensions of leased space;
- additional rents or CAM (common area maintenance) expenses;
- the tenant’s obligations to secure insurance;
- responsibilities for various types of repairs;
- consent, if any, required for modifications to the space;
- signage restrictions;
- exclusivity provisions;
- definitions of “default” and termination protocols; and
- requirements for alternative dispute resolution, such as arbitration, in the event of a dispute.
Is a commercial lease basically the same as a residential lease?
No. There are far fewer consumer protections for commercial leases.
Commercial leases are harder to break, and they come in multiple forms (gross and various types of net leases) with varying types of expenses included in the monthly “rent.”
As the SBA (Small Business Administration) says on its website, “Leasing commercial office space is one of the largest expenses incurred by new and expanding businesses, so it is important to do your due diligence.”
Why do I need a lawyer for a commercial lease negotiation?
Even if you didn’t hire a lawyer to review your last apartment lease, you will want a lawyer to review your commercial lease.
Not only are commercial leases one of the largest expenses incurred by new businesses, they also often include a personal “guaranty” – meaning that you (the owner of the business) could be personally responsible for repaying tens or hundreds of thousands of dollars, if you break the lease. Sometimes, this personal guaranty can be triggered by as little as making a rent payment a few days late.
Landlords can push the boundaries to see what they can get away with – having a lawyer help you negotiate a commercial lease can help save you from financial ruin.
Having a lawyer walk you through a commercial lease will help you identify you walk-away points, evaluate whether a particular space is the right fit for you, and make sure you understand all of the moving parts of the lease.