A commercial lease is far more complicated than an ordinary rental.
Unfortunately, that’s information that many new business owners don’t have when they first start out. It may not be until they encounter a problem for the first time that they find out. By then, naturally, it could be too late to avoid a very expensive lesson.
To help you avoid that cost, here’s are a few things every new entrepreneur ought to know about a business lease — before signing one:
1. Understand the type of lease you are signing
If you’ve only ever rented a house or an apartment, you probably aren’t familiar with terms like double-net and triple-net leases or modified gross leases. However, commercial leases come in a variety of forms. What you sign affects whether or not you’re responsible for things like plumbing repairs and the maintenance of common areas shared by you and other tenants — including the parking lot. Don’t sign until you know exactly what you’re agreeing to cover.
2. Don’t assume the price quoted is accurate
You may notice that the price you’re paying is broken down to a certain dollar amount per square foot of space. Verify that you’re going to get what you’re paying to rent. Use your own ruler or have a contractor measure it out.
3. Evaluate base operating costs closely
Don’t agree to operating expenses like utilities and repairs without understanding how they’re calculated. If the rate is calculated off the former tenant’s costs, that’s not applicable to you.
4. Examine any escalation clauses carefully
Longer leases generally include them, but a duplicitous landlord can put one in there that sucks all the profit out of your business every year, making it impossible to get ahead. An escalation clause should have a cap and relate to the true cost of inflation — not just line your landlord’s pockets.
Because commercial real estate leases are so complicated, it’s generally a good idea to get some legal assistance with any terminology you don’t understand. If you’re being pressured to sign, that may be an indicator that the landlord is hoping you’ll jump on it before you notice any traps for the unwary.
Source: Forbes, “Negotiating A Commercial Lease? Here’s What You Need To Know,” Clint Gharib, accessed Jan. 31, 2018