As a small business owner, one of the most important decisions you will make is the one concerning the property you will lease and run your business from.
Notwithstanding the recent pandemic-induced shift to a largely remote working environment, all indications are that in due time things will, to some extent, revert back to their pre-pandemic levels as it concerns office-based work.
Even though the location of a business can contribute to its success or otherwise, it goes without saying that just because you find an optimal location for your business doesn’t mean that you should simply sign whatever commercial lease is offered to you without fully understanding every single term in the contract.
Fully understanding the commercial lease you are looking to potentially sign and negotiating with a landlord for more favorable terms are things that you should delegate to someone who is likely more experienced and knowledgeable in such matters than you are.
Due diligence in real estate is critical whether is a residential or commercial property. A qualified attorney can help you with your research.
Commercial Lease Negotiation Process and Why You Need A Lawyer
The truth of the matter is that finding a great property that is suitable for your business is only one step of the process. In all probability, you will likely still need to negotiate with the landlord concerning things like the monthly rent, the length of your lease, termination options, force majeure clause, and much more.
The process of reading a commercial lease agreement is indeed arduous, but negotiating the terms can be even more challenging, especially if you are not well-versed in real estate law.
One of the gravest mistakes small business owners make is thinking they can handle their commercial lease negotiations on their own.
Consulting with, and engaging with a local real estate attorney to handle this process on your behalf is a safer bet that is likely to provide you with a more favorable outcome.
Not only will an experienced lawyer be able to explain the terms of the lease better, but they can also spot unfavorable terms or those that put you at a disadvantage.
Small business owners understandably try to save as much as they can, but lawyer fees in a commercial transaction are not something you should skimp on.
There are numerous things that small business owners may not notice but that a real estate lawyer will not find amenable or favorable in your commercial lease. Some of these will be discussed in the next section.
Three Things to Consider Negotiating in a Commercial Lease
Here are some of the most important aspects of a commercial lease agreement that your lawyer will look into:
Most commercial landlords demand long-term leases to guarantee an extended stream of revenue. However, this is not always favorable for tenants.
For most new businesses, a flexible term length with options to renew or expand is more beneficial. Furthermore, your lawyer will look into the terms concerning increases in rent.
Percentage increases over the previous year’s rent is a common feature of commercial leases, but the formula for determining how much increase will be added yearly should be clear and not skewed to the landlord’s whims.
Right To Early Exit
If your business is still new, having an option to exit your lease is one way to protect yourself from unnecessary further loss should your business go under.
Naturally, landlords incorporate terms that will prevent you from terminating the lease early. They can use this to try and sue you for the rent you were unable to pay in the future.
To avoid these, lawyers take care to include provisions that would allow the tenant some flexibility, such as allowing subleasing rights, assignments, or consideration from the landlord.
Depending on the type of business you conduct, you may need to make improvements to the property. These are more likely to add value to the property once you leave it.
Despite this, however, some landlords require tenants to remove any improvement and restore the original condition of the property. This is not something that you need to agree on. You should negotiate to remove this requirement altogether.
Set Your Business Up For Success
The commercial lease is not a minor detail to operating a small business. It is a significant detail that could derail your business’s growth if not handled properly.
It’s important, therefore, to pay attention to this. Do not skimp out on paying a real estate lawyer because they can guide you and protect you from disaster in the future.
In conclusion, it is important that any commercial lease that you end up signing does not only cater to the needs of your business as it concerns your real estate needs but that it does not conflict with certain provisions contained within the operating agreement of your company, for instance.
It might, therefore, also be helpful to involve a small business attorney in the transaction to make sure that the interest of the business is further protected.
About the author: The above article on negotiating a commercial lease was written by Kanayo Okwuraiwe. Kanayo is a startup founder, an incurable entrepreneur, and a digital marketing professional. He is also the founder of a digital marketing company called Telligent Marketing LLC that provides attorney SEO services to help lawyers grow their law practices.