Even in an age where many businesses operate almost entirely online, finding the right location for your company is essential for establishing its long-term success. This not only includes making sure that the property itself suits your business needs, but that the terms of your lease are adequately arranged to avoid unexpected complications down the line. Yet despite the fact that a commercial lease is arguably the most widely used document that business owners will encounter, it is also one of the least understood. If you are a business owner who is thinking of moving to a new location, consider these important tips before signing a new commercial lease.
What Is A Commercial Lease?
In its simplest terms, a commercial lease is a contract between a landlord and a business that establishes the rules and requirements that go with renting a property. Renting is generally the preferred option for most businesses looking to using a property, mostly because it requires less capital when compared to just buying a property. However, renting a property for business usage comes with its share of challenges, as a commercial lease agreement is far more complicated than a residential lease, mostly due to the fact that terms are negotiable. This means that business owners should be more cautious about signing a lease, as they come with fewer legal protections compared to residential leases. Despite the complexity of commercial lease agreements, it is estimated that roughly 80% of small and mid-sized business owners will sign one without ever reading it, with an additional 10% signing even if they do not fully understand the language included in the document. This blind faith approach to signing a lease could potentially lead to serious repercussions for a business, as the longer and more varied terms can lead to high rent amounts and a number of challenges on how the property is used. Furthermore, once the lease is signed, it is too late for any additional negotiations, so there is nothing that can be done even if a mistake is discovered.
What Types Of Commercial Leases Are There?
Many business owners seem to operate under the assumption that a commercial lease is a standardized document that is largely the same across different properties. In truth, they are highly customizable, with many of the terms being negotiable. That said, there are a handful of basic structures that are often used when building a commercial lease agreement based on what a tenant is expected to pay for besides their rent. These are agreement types are:
- Single Net Lease / Net Lease: tenant pays for utilities and property taxes.
- Net-Net / Double Net Leases: tenant pays for utilities, property taxes, and insurance premiums on the building.
- Triple Net Leases: tenant pays for all of the costs of the building aside from structural repairs.
Full-Service Gross / Modified Gross Lease: tenant and landlord split the costs of structural repairs and operating expenses.
What Terms Need To Be Considered?
What makes a commercial lease more complicated than other leases is the overall lack of standardization and the many terms that can be negotiated. While this does mean that the process requires a more considered and cautious approach, a well-informed business owner can use this customization to ensure that their new property meets all of their company’s needs. Before signing a business lease, make sure that these terms are covered in sufficient detail:
- Rent Amount & Annual Increases
- Description of the Property
- Length of Lease
- Security Deposits
- Landlord Relocation Rights
- Tenant Improvements & Condition of Premises
- Building Operating Expenses
- Usage & Exclusivity Clauses
- Assigning & Subletting Permissions
- Compliance with ADA and other Regulatory Concerns
Many of these terms will often decide whether or not a property is even financially viable for your business, so be sure that they are included in your lease agreement and that they meet your company’s specific needs.
Where Can I Find Help?
Over the years, we at CCSK Law we have witnessed many horror stories from business owners whose profits and growth were unknowingly diminished by the one-sided language in their lease contract. Unlike large publicly traded companies that tend to have their own real estate experts on staff, small to medium-sized businesses are often left to fend for themselves against an experienced landlord and the legal teams that tend to represent them.
By gaining a better understanding the lease and its contents, the business owner stands a greater chance of being more profitable and successful while reducing the inherent risks and exposures that are typical with all commercial lease contracts. At CCSK Law, we help business owners navigate the entire lease process. From reviewing and explaining the existing lease documents to identifying and negotiating specific lease terms, we provide the insight and support necessary to make the most of your lease arrangement. This is Law. Simplified. For You.
 FindLaw. (n.d.). Commercial lease agreement overview. FindLaw. Retrieved from https://smallbusiness.findlaw.com/business-operations/commercial-lease-agreement-overview.html.
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 Dorn, T. (2017, August 26). Lease Doctor: Common pitfalls in a commercial lease. The Press-Enterprise. Retrieved from https://www.pe.com/2017/08/26/common-pitfalls-in-a-commercial-lease/.
 Dorn, T. (2017, August 26
 Gharib, C. (2015, June 2). Negotiating A Commercial Lease? Here’s What You Need To Know. Retrieved from https://www.forbes.com/sites/groupthink/2015/06/02/negotiating-a-commercial-lease-heres-what-you-need-to-know/.