I could complete this post by simply saying…you don’t hate yourself enough to read, understand, and negotiate your own commercial lease. Pay a lawyer. THE END.
My own commercial lease starts like this “In consideration of the mutual covenants, obligations, and agreements…zzzzzzzz. It’s 35 pages long with 43 separate sections, several exhibits, and a glossary of terms? Riveting!
So, I’m telling you to get a lawyer. But, if you don’t want to, I will tell you where you might be able to negotiate (if you can stay awake long enough) your commercial lease on your own.
- Use. Many leases will be narrow and restrictive about what you can use the space for. For instance, if you are a yoga studio, what if you want to have small events on the weekends, like retreats or gathering? Or, what if you want to sell smoothies. Make sure your lease permits this. In additional to defining use at the outset, depending upon the space and location you are renting, a good idea to include an Exclusive Use provision (if applicable) that states that your business will be the only business of its kind that may exist in the shopping center.
- Term. Be sure you can live with this. Terms are generally longer than residential leases. Also, you might want to negotiate the ability to renew. This is super important if you are making substantial renovations to the space. You don’t want the landlord to offer the space to someone else out from under you, you want to be offered the change to renew.
- CAM. CAM is so over the top I did an entire post on it last year. It stands for Common Area Maintenance and is a monthly fee you will be charged based on what the landlord thinks the sum total for the year will be. See Understanding Your Commercial Lease. CAM is your portion of expenses pertaining to upkeep of the building or shopping center. Since CAM is based on predictions, one thing you can do is at the end of the year, make sure your landlord gives you the true and accurate statements of the actual amounts they paid. Then, true up.
- Maintenance. How old is the HVAC!? You will want to know the answer because you will likely be responsible for maintenance and replacement. You will want to get a clear understanding of your maintenance obligations. Commercial leases are not like residential leases, where the landlord fixes the things that break. One big ticket item is the HVAC equipment. Landlords often shift the responsibility for replacing or repairing the HVAC on tenants. Sometimes you can shift some of this responsibility, I have in the past, but if you cannot, you at least need the landlord to represent that the HVAC is in good working order when you take over the space. If it is newer, and depending on the circumstances, I’d pause and reconsider.
- Guaranty. This is a BIGGIE. Your entity (LLC, Corp.) is typically the tenant, but you, as the owner, are the guarantor. This essentially makes you personally liable for the full amount of the rent, and any other obligations under the lease. In other words, you, personally, are not shielded from personal liability because you have an LLC.
- Tenants work. Sometimes you can negotiate money form the landlord or off the rent to help with costs to build out the property the way you want it. it is worth discussing, and not uncommon.
- Damage. If the space is damaged, who pays. I have heavily negotiated this section and have found that landlords are flexible here when it comes to certain types of damage. Also, commercial leases contemplate catastrophes, and they generally give the landlord options to fix or not, and time frames. For example, if the building partially burns down, the landlord has discretion about whether to fix or not. Fine. But, then the landlord has a built in time frame to have reconstruction completed. Sometimes this can be over a year…so, you and your lawyer should look at this section carefully, even if it seems like a scenario that will never happen, it’s worth examining.
- Assignment and subletting. You will always need your landlord’s approval to sublet or assign the lease to someone else. Also, if you do sublet, the rent you collect will be due to the landlord, even if it’s more than the rent you are obligated to pay. But, most important, if it is a possibility that you might sell your business or need to sublet the space, negotiate, up front, a release from your obligations under the lease and guaranty once the new tenant assumes the lease. This doesn’t happen automatically, like you might think it would.
- Landlord’s remedies. What happens to you if you default? Sometimes, the punishment can be overly severe. For instance, in some commercial leases the landlord can take over the space without terminating the lease thereby keeping you on the hook for the rent and changes…this is sort of BS, right. At a minimum, make sure that the landlord must mitigate the damages by reletting the space ASAP after a default. This could help you out if you fall on hard times.
If you need help understanding your commercial lease, contact Wick Law Offices, LLC today! We can answer your questions and help you determine what and how to negotiate!
Call me! 614-572-6366. Email me! email@example.com.
Wick Law, LLC is a small business legal practice, representing owners, investors, and entrepreneurs in all aspects of commercial, corporate, and business law, estate planning, contracts and negotiations, business litigation, and real estate. For more information: Contact 614-572-6366, visit www.mwicklaw.com, or email us at firstname.lastname@example.org. Wick Law, LLC is located in Columbus, Ohio.
(Materials in this article have been prepared by Wick Law, LLC for general informational purposes only. This list is for educational purposes and is not to be considered exhaustive. More items could be added to this checklist based upon the type of transaction or industry standards. These materials do not, and are not intended to, constitute legal advice. The information provided is not privileged and does not create an attorney-client relationship with Wick Law, LLC or any of the firm’s lawyers. This checklist is not an offer to represent you. You should not act, or refrain from acting, based upon any information in this checklist. Wick Law, LLC maintains offices in Columbus, Ohio, and has lawyers licensed to practice in Ohio and in the United States District Court, Southern District of Ohio. The firm does not intend to practice law in any jurisdiction where the firm is not licensed.)
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