When entering into a commercial lease agreement, there are a few common mistakes made in the negotiation process that are avoidable, and could be impactful to your business. When signing a lease for new commercial property, business owners must evaluate many important items, a few of which are outlined below.
Key Considerations When Entering A Lease Agreement
First, make sure that you understand the terms in the lease and whether it is for “usable square feet” or “rentable square feet.” The lessee should have an understanding of the definition of the terms in order to compare the prospective lease space to other possible properties and make an informed decision. Understanding the terms in the lease will also give the tenant a better perspective of how much useable square footage there is at the location, rather than the total square footage, which could include space that is not useable.
Be aware of standard remedies that are included in the lease agreement regarding tenant default. They are often very difficult remedies for the tenant in situations of default, and can include requirements for the tenant to pay all future rent at the time of default. The tenant should make sure that, in an event of default, the terms are reasonable and understood so that there are no surprises should a default occur.
A final item to consider when entering into a lease agreement is use restrictions on the property. The lease agreement should explicitly state what the leased property can be used for and what is prohibited. In addition to being aware of the uses of the property, a tenant should also look into the exclusivity of the location. As an example, a restaurant could look for an exclusive spot in a shopping mall that would prohibit a competitor from leasing a space in the same location. Exclusivity and use of lease space might seem straightforward when initially drafting the lease, but some thought should be given to the future to determine all possible uses of the space and requirements needed as your business continues to evolve to ensure that the space is the correct space for your business.
The final days of lease negotiation can often be hectic. While there are many items that have to be considered during negotiations, the terms of the agreement and the impact of the use of the property and language within the agreement are very important. Full consideration should be given to the smaller details within the agreement that could have an impact on the business in the future.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.