Congratulations! You've finally found an ideal location for your business, and you can start negotiating the lease with the landlord.
But what should you be looking for in the commercial lease agreement? Before you sign anything, review the lease and make sure it answers each of the following questions:
- Will you be given a copy of the building inspection report? If not, can you arrange for your own inspection?
- Is a drawing of the leased premises attached with the demised area clearly marked?
- What is the date of possession? What are your remedies if the space is not available to you on the date of possession?
- Are you required to obtain any approvals or comply with any local regulations or ordinances before you can commence business in the leased premises?
- How long is the rent-free period? When do the lease payments begin?
- How will your security deposit be handled? How long will it take to receive a refund of the deposit at the end of the lease term?
- Are there restrictions on your use of the space? What are those restrictions?
- What are the provisions for rental increases? How much prior notice will be given?
- Are tenants required to pay a portion of the property taxes for the building?
- What types of insurance coverage, in what amounts, are you required to carry?
- Which utilities and services will you be responsible for paying?
- What other costs are associated with the space (advertising, merchant association dues, etc.)?
- How much will the landlord pay towards your leasehold improvements?
- Are there any restrictions on what kind of signage you can have? Do you need to get the landlord's prior approval before installing your signs?
- What are the landlord's obligations for repairs and maintenance on the building, the common areas and your premises?
- How much are your common area maintenance costs?
- What are the provisions for renewal of the lease at the end of the term?
- Do you have the right to assign the lease or sublease any of the space?
- What are your rights in the event of eminent domain, foreclosure, or partial or total destruction of the premises?
- What happens if you default in any of your obligations?
- What are your remedies if the landlord defaults?
- Are you required to return the premises to its original condition at the end of the lease period? Based on the original condition, what will the costs be to do this?
- Is there an obligation to pay legal fees and costs in the event of a dispute?
If you are satisfied with the answers you get to these questions, you should submit a Letter of Intent (LOI) or a Lease Proposal to the landlord which sets out all the negotiable elements of the lease.
The LOI or proposal should set out such details as square footage, initial term, renewals, base rent, rent-free period, allowance for leasehold improvements, etc., as well as the relevant tone of your negotiations to date. This will allow the parties to continue to negotiate the final terms of the lease. Keep every draft as a paper trail documenting the negotiations.
Finally, have your lawyer review the lease BEFORE you sign. And never sign anything that you don't fully agree with.
Image by H. Cuthill
