Commercial leases are often lengthy and complex documents that can be overwhelming to read. However, it’s essential to carefully review every part of the lease before signing. While every term is important, certain sections of a standard commercial lease require extra attention. Here are the key areas you should focus on:
Length of the Lease
The length of your lease plays a critical role in your business’s stability. A longer lease may offer the benefit of a lower monthly rent since landlords prefer tenants who commit to extended terms. This helps them avoid frequent vacancies or renegotiations. However, if your business needs are likely to change soon, a shorter lease might be the safer choice. This way, you can avoid paying for unused space or dealing with costly penalties for breaking the lease. Including a sublease option can also provide flexibility, allowing you to rent out any unneeded portion of the space.
Rent and Security Deposit Terms
One of the most important parts of your lease is the rent and security deposit section. Don’t just look at the monthly rental rate. Instead, check for details about when rent increases might occur and by how much. Also, take note of any additional fees, your share of operating costs, and any allowances for improvements to the space.
Regarding the security deposit, see if you can negotiate its terms. In some cases, offering a letter of credit from a financial institution might allow you to waive the security deposit altogether.
Premises Terms
Many business owners overlook the premises terms in their commercial lease. This section defines exactly what part of the building you’re renting. For example, if you’re only renting a portion of the building, ensure that the contract includes access to shared spaces such as parking, storage rooms, lobbies, waiting areas, and conference rooms.
Use Terms
The use terms outline the rules governing what type of business activities you can conduct on the premises. It’s important to check for any restrictions that might limit your operations. For instance, other tenants may have exclusive rights that prevent competitors from being located in the same building. These clauses could block your plans to expand into other business lines in the future. Additionally, review the terms related to signage and advertising to understand the limitations on your branding efforts within the property.
Negotiation is Expected
Remember, the first draft of the lease is often crafted with the landlord’s interests in mind. However, this doesn’t mean you have to accept everything as-is. Landlords expect negotiation, so don’t hesitate to discuss adjustments that could benefit both parties and create a fairer contract.
Even after outlining all the information above, writing a letter of intent (LOI) can still seem daunting. That’s why the Leveraged CRE Team at Commercial Properties, Inc. is here to help locate commercial space for lease and assist in using a letter of intent to land such space. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
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