Commercial leases are lengthy and can be daunting to read. However, it’s crucial to carefully review every part of the document before signing. While all parts of a commercial lease are important, certain areas require special attention. Let’s explore the key terms you should focus on when reviewing a standard commercial lease contract.
Length of the Lease
The lease term significantly impacts your business. A longer lease often secures a lower monthly rent since landlords prefer tenants who commit long-term. This reduces their need to renegotiate or fill vacant spaces frequently. However, if you expect your business needs to change soon, a shorter lease might be better. You don’t want to pay fees for unused space or face costly penalties for breaking the lease early. Including a sublease clause can provide flexibility in case your business changes before the lease ends. This allows you to rent out any unused space to another tenant.
Rent and Security Deposit Terms
Understanding how much you’ll pay is critical. Don’t just focus on the monthly rental rate. Be sure to review if and when rent increases, and by how much. Also, check for any additional fees, such as operating costs passed to you as the tenant. Find out what allowances, if any, are provided for improvements to the space. Additionally, pay attention to the security deposit. Sometimes, you can negotiate out of paying a deposit by providing a letter of credit from your bank.
Premises Terms
Many business owners overlook the terms of the premises in the lease. This section outlines exactly what space you’re renting. For instance, if you’re only leasing part of a building, ensure the contract includes access to shared areas like parking, storage rooms, lobbies, and conference rooms.
Use Terms
The use terms detail what you’re allowed to do in the space. This section may contain restrictions on the type of business you can run. For example, other tenants in the building may have clauses that prevent direct competitors from leasing nearby. This could limit your ability to expand into new business areas later. Furthermore, the use terms typically include rules for signage and advertising. Keep in mind that the first draft of a lease will likely favor the landlord. However, you don’t have to accept those terms as-is. Landlords expect negotiation, so don’t hesitate to request adjustments that benefit both parties.
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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