Have you outgrown your home office? Do you currently lease space but are considering moving to a bigger or different location? If so, you will need to consider many issues as you negotiate your commercial lease. As you look for space suitable for your business, here are 12 key factors to consider.
- Zoning. Is your business permitted to operate in the location you are considering? Be sure to check local zoning laws to determine if your business may operate in that location, either by right or with a special permit. Don’t rely on the landlord to make that determination for you, and don’t rely on nearby businesses, as their use may be grandfathered if they were operating before current zoning laws were adopted.
- Restrictions. What other tenants already occupy space at that location? Do they have any restrictions in their leases that would prevent you from opening? Similarly, if you open your business, will the landlord agree not to lease space at that location to a competitor? Is the mix of other tenants desirable for your business?
- Physical Condition. What is the condition of the space? Will it need renovations before you can move in, and if so, will the landlord help pay for any renovations? Will the renovations trigger requirements to bring the space up to current building code?
- Parking. Is there parking available for your employees and customers? Is the cost of parking included in the lease? If there is no parking included with the space, what kind of parking is available nearby on the street or in private lots?
- Rent. What is included in the rent? Many leases are written to be “net” to the landlord, which means the tenant pays for extras like the landlord’s cost of insurance, real estate taxes and common area maintenance costs, also known as common area maintenance charges, ( “CAM”). Tenants typically pay their proportionate share of these items based on the size of their space.
- Mechanical Systems. Who pays for repairs of mechanical systems, like the HVAC system? Many leases require tenants to maintain these systems and replace them if they cannot be repaired.
- Term. How long is the lease? If you are investing money to renovate the space for your use, how long will you be able to remain at this location? The term of the lease often can be extended by options, which give the tenant the right to extend the lease for additional time.
- Assigning and Subletting. If you can’t finish out the term of your lease, or if you need less space later, does the lease permit you to assign it to another tenant, or sublet part of it to another tenant?
- Signatory. Who will sign the lease? Do you have a business entity in place, such as a corporation or an LLC? Does the lease require a personal guaranty by the owners of the business, which means that if the tenant named in the lease doesn’t fulfill its obligations, the landlord can look to the guarantor personally to pay the rent or perform other obligations under the lease. If the landlord insists on a personal guaranty,perhaps the landlord would be willing to limit it, or let it expire after a certain amount of time has passed.
- Boilerplate. Commercial leases contain many technical terms. It is extremely important you understand what all these terms may mean to you during the term of the lease.
- Negotiate. Many landlords are willing to negotiate key provisions of the lease. You may not get the landlord to agree to all the changes on your wish list, but you should make a prioritized list of terms you’d like to negotiate and ask the landlord to consider your requests.
- Read It! Reading a commercial lease is essential. Partner with your attorney to make sure you understand all the lease terms before you sign.
These 12 points are just some of the factors you might consider when locating new space and negotiating your commercial lease. Please reach out to our real estate attorneys if you need help understanding or negotiating your commercial lease.
Pam Stevens, Partner
Seder & Chandler, LLP
339 Main Street