MightyRecruiterBefore you sign a commercial lease or even start negotiations, you’ll need to know about the various clauses you can anticipate as well as the normal expectations for each section. With a good knowledge of what is to come, you can negotiate better terms.
Rent Section
Your monthly rent is an important expense, and even if the rates are set, you may have negotiating room in your contract for the following elements:
• Rent increases: Many contracts will have automatic rent increases, so understand what the figures are based on and if the increases are fair and realistic.
• Improvement reductions: Your landlord may agree to lower your monthly rent should you improve the facilities.
• Operating costs: Determine how much of the landlord’s operating costs can be passed to you.
• Unanticipated rent issues: Establish a method for resolving unexpected rent issues like increases.
Insurance Section
Your landlord may require you to have basic business insurances like liability or property coverage. If you can, try to negotiate rental interruption insurance or leasehold insurance to protect you in the event of business disruption or lease cancellation beyond your control.
Security Deposit Section
Unlike residential landlords, commercial landlords can ask whatever they want for a security deposit. To negotiate a lower price, consider offering a letter of credit from your bank to protect the landlord should you default.
Premises Description Section
The premises description is very important as it defines what you are renting. If you are renting an entire building, you can just put the address. Otherwise, be sure to describe the rented space in sufficient detail including access issues.
Maintenance Section
Maintenance is a major source of contention between tenants and landlords, so make sure this clause dictates:
• Who pays maintenance bills
• Who is responsible in the event of a maintenance issue
• The method for resolving maintenance issues
• How issues impact rent
• The exact duties of the tenant with regard to maintenance responsibilities
Use and Exclusives Section
Use clauses can prohibit you from performing certain business actions or direct the manner in which you advertise on the premises. Exclusive clauses dictate certain actions only you can perform on the premises. Typically exclusive clauses are reserved for well-established businesses trying to limit close competition.
Term Section
Though the terms section is fairly straightforward, you should give it a fair amount of attention. Here, you will define when certain tenant obligations are due, such as:
• Due date of security deposit
• Due date of first month’s rent
• The effective date of renter’s insurance
• The effective date of required business insurances
• The move-in date
If you sign the lease well before your grand opening, you’ll want to ensure you aren’t paying insurance or rent before you’re ready for the financial strain.
Improvement and Alterations Section
You may spend the most time negotiating the improvement and alterations section because it will limit your ability to design and customize your space. Additionally, it’s usually the longest section. Also consider how any changes you make might impact rent.
Parties Section
The parties section simply lists those involved in the lease. However, you’ll want to be sure to use your business name on the lease as opposed to your personal name to limit liability in the event of an unforeseen problem.
Other Important Sections
While these sections are perhaps the most common commercial lease sections, you will likely deal with a host of equally important but more specialized clauses. Be sure to negotiate terms that will work for your business and consider the elements of these sections:
• Parking space allotment
• Access issues
• Security responsibilities and arrangements
• Lease renewal options and terms
• Subletting options and terms
• Dispute methods and solutions
• Distribution of attorney fees
• Foreclosing procedures
Before you sign the terms of the lease, you may want to consult with a legal professional. In fact, it might be a great idea to bring your legal team to the negotiations depending on the situation.
Legal Disclaimer
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.