SIGNING A COMMERCIAL LEASE? TOP 6 QUESTIONS TO ASK IN NEGOTIATING A FAIR DEAL
Whether you are new to commercial leasing, or a seasoned pro, it is important to be educated in determining whether a commercial space is well-suited for your business and whether you are protected by the lease. Commercial leases are complicated and can be intimidating to tenants. To avoid being taken advantage of by the landlord after sensing your inexperience, you need to be prepared.
The effects of a bad lease can last for years. Therefore, it is crucial that you fully understand the terms of the lease before signing on the dotted line. Familiarizing yourself with the intricacies of a commercial lease is a good start. The following are our top 6 questions to ask in negotiating a fair deal:
- How are costs calculated? Typically, there are formulas associated with expenses being charged. One of the most confusing provisions involves common area maintenance (CAM) charges. These include taxes, insurance and expenses associated with operating and maintaining the entire property. You would typically be allocated a percentage of the CAM based on the percentage of the building you are renting.
- What costs do I pay? Depending on the type of lease, you may be paying all or part of the taxes, insurance and maintenance associated with the use of the property, in addition to monthly rent. It’s important to understand exactly what you are paying and how much the landlord can increase the amount each year. Be prepared to negotiate.
- Can I modify or improve the space? Do you need additional wiring for electrical, computer and phone networks, Wi-Fi, etc.? Is major construction needed? You must understand the types of improvements that can be made, your tenant improvement allowance and fees the landlord charges to supervise and inspect the work. Again, these can be negotiated.
- How much insurance will I need? Insurance can add significant costs to running a business. The lease may require certain insurance coverage such as a minimum amount of Commercial General Liability (CGL) insurance to protect the landlord. However, you may be required to get additional insurance for the structure or an umbrella policy to protect yourself from other risks.
- What are the renewal terms? Issues like the length of the lease, how many renewal terms are available, rent increases, concessions and other matters can have a lasting effect on your business. If you think you are likely to renew, consider these provisions carefully so you get the most favorable terms.
- Can I sublet or assign the lease? Tenants may want to sell or move their business and don’t want to be penalized for breaking the lease. However, landlords often don’t allow tenants to assign the lease or sublet it to another tenant, or they make it very difficult and charge additional fees for doing so.
In addition to these questions, we recommend that you investigate the history of the landlord and the property so you understand what you may be getting into by signing the lease. For example, who is the landlord and how long have they owned the property? Are there plans to sell the property? When was the last time the building was renovated? Who is the property manager and what is their track record? If there are other tenants in the building, how long have they leased their space and what is their experience with the landlord? You need to do your own due diligence on these questions.
This is just a sampling of issues to consider. Our experienced attorneys at Schwartz Ettenger can help you avoid potential problems and negotiate beneficial terms. If you are considering leasing commercial space, contact us for a consultation.