If you’re a business owner, chances are you will need to enter into a commercial lease at some point. Whether you require retail, office, warehouse, or restaurant space, the terms of your commercial lease can play a critical role in the success of your company. It’s essential to carefully review and skillfully negotiate any commercial lease before signing it — otherwise you run the risk of being stuck with hidden costs that can quickly accumulate and have major ramifications for your bottom line. Here are seven tips to consider when negotiating a commercial lease.
Before signing a commercial lease, it’s essential to evaluate the current and future needs of your business. Make a list of your company’s short-term and long-term needs to determine whether a particular location is right for you. You should consider your budget, the square footage you will need, the length of the lease, and any rent increases. If you aren’t certain about your long-term needs, you might consider negotiating a shorter lease term.
There are several different types of lease options, and it’s important to know the ways a lease can be constructed when negotiating a commercial lease. For instance, a gross lease includes all expenditures related to running the property, such as property taxes, utilities, and maintenance. In such cases, a tenant would not have to be concerned with the daily operations of the building and can instead focus on running their business. In contrast, a net lease has a lower base rent than a gross lease, but the tenant would be required to pay for the property taxes, utilities, or maintenance costs — depending upon whether the net lease was a single, double, or triple net lease. A modified gross or net lease is a structure that can provide an even greater range of options for a business owner.
Even if you think you’ve found the perfect location for your business, it’s essential to research the property and gather information that could be useful when negotiating a commercial lease. For example, you should look at the building’s neighbors to make sure they are compatible with your business and aren’t competitors. You should also find out what the traffic is like and whether there will be enough available parking spaces. You might also want to know about foot traffic, the neighborhood, and any other factors that could impact your business.
A sublease clause is a good option to include in a commercial lease, in addition to or in lieu of a lower termination fee. If you need to move to another space, subleasing can allow you to have flexibility and recoup your lost rent. Specifically, a sublease agreement allows a tenant to transfer ownership of their lease to another party. Upon consent of the landlord, the tenant can appoint a subtenant to take over the lease of the property under the same terms and conditions.
A force majeure clause is the portion of a lease agreement that stipulates the situations in which the obligations of the landlord or tenant may be excused. The provisions often cover exceptional circumstances beyond the parties’ control, such as natural disasters, strikes, war, and labor disputes. However, they don’t always include things like pandemics or epidemics, as many tenants learned during COVID-19. When negotiating a commercial lease, it’s crucial to carefully consider a force majeure clause to ensure all possible unforeseen applicable events are covered.
A co-tenancy clause is a provision that permits you to break your lease if a larger tenant that drives business to you in the same building or strip mall moves. This can be particularly important for small retail shops that are dependent upon the presence of a large chain store in their location that serves as the initial attraction. If you are leasing property in a location such as that, it’s a good idea to make sure you will be able to break your lease in the event the larger store relocates.
By working with a commercial real estate attorney, you will have counsel on your side who is skilled in lease negotiations and can work to secure the best possible results on your behalf. As a business owner, your primary focus should be on your business operations and profit margin. A commercial real estate attorney will have a deep understanding of the applicable laws, can advise you of your rights, and will protect your legal and financial interests. Significantly, an attorney can provide you with peace of mind knowing that your lease will be negotiated effectively.
Negotiating a commercial lease is vital for the success of your business. From drafting, to negotiating, and resolving disputes in litigation, the knowledgeable commercial real estate attorneys at White and Bright, LLP provide reliable representation to commercial tenants, landlords, business owners, developers, management companies, and investors. We welcome you to contact or call us at (760) 747-3200 to learn more about our legal services.