Don’t Let the Dust Settle on Your Commercial Lease: Eleven Factors to Consider
Owners often don’t understand their leases, and this can be an expensive oversight. If your business is location-sensitive, then the status of your lease is likely a major factor in the value of your business. The location of restaurants and retail businesses is usually critical to the operational success of the business. But every business should understand in detail the terms of its leases.
Key factors involving leases should not be ignored or overlooked. If you adhere to these guidelines, you’ll be much more likely to control your outcomes.
- Lease length. Usually, the longer your lease the better.
- Buying the property. If the property goes on the market, it is often in an owner’s best interest to buy the property or he or she may be forced to move.
- Exit clause. When negotiating a lease, it is best to negotiate a way out of the lease if possible; this is particularly important for new businesses where the fate of your business is still an unknown. Experts recommend opting for a one-year lease with a long option period.
- Transfer provisions. You may want to sell your business at some point, and this is why it is important to see if your landlord will allow for the transfer of the lease and what his or her requirements are for the transfer.
- Non-compete clause. If your business is located in a shopping center, have it written into your lease that you’re the only tenant that can engage in your type of business.
- Anchor store closing. If you’re located in a shopping center, then try to outline in your agreement a reduction of your rent if an anchor store closes.
- Tenant/Landlord responsibilities. Your lease should describe what your responsibilities are and what responsibilities your landlords hold. Keep in mind that if you are a new business, it is quite possible that your landlord will likely require a personal guarantee from you, the owner.
- Insurance/Disaster Provisions. What happens in the event of a natural disaster or fire? Who will pay to rebuild?
- Percentage clause. Are you obligated to pay a percentage of your gross sales in rent, or a percentage clause? If so, is that percentage clause reasonable?
- Taxes and Fees. How are real estate taxes, grounds-keeping fees and maintenance fees handled?
- The bottom line: show me the money. The dollar amount is necessarily the most important factor in determining the quality of your lease. It is important to carefully assess every aspect of the lease and understand all of its terms.
Investing the time to understand every aspect of your lease will not only save you headaches in the long run, but it will also help to preserve the integrity of your business.