Signing a business contract, such as a commercial lease, can be stressful. You are committing to a payment schedule over a long period of time. Selecting office space for your business is one of the most important contracts you’ll sign. Here are some commercial lease negotiation pitfalls and red flags to look out for and navigate with caution.
Of course, a leasing company wants to sign you to the longest agreement possible, ensuring them revenue for years to come. But entering into a lease agreement of longer than two (2) years is ill-advised. If you have to break it, you’ll be stuck paying for the additional months, something that can greatly reduce your bottom line profits. It’s best to sign a one (1) year agreement with a renewal clause.
Unless you know you’re only going to need the space for a limited period of time, make certain your lease includes a renewal clause. Make sure the renewal clause doesn’t commit you to more than two (2) years—again, one (1) year is best. Signing a lease agreement without a renewal clause could mean you’ll be evicted after your lease expires to make room for a tenant willing to pay more.
Forfeiting Legal Rights
Signing a lease agreement that forfeits your legal rights means you can’t take legal action against the landlord. Don’t do it. You can’t predict what the future holds, so don’t hamstring yourself by forfeiting any legal rights.
While you’d never move into office space without a lease agreement, make sure the lease spells out exactly what the landlord is responsible for, including what, and when, they will correct any issues that might arise. Your landlord may agree to make repairs “quickly” but be sure their interpretation of “quick” aligns with yours by specifying a time limit. Also, make sure this guarantee is included in the renewal agreement, as well.
Beware the Triple Net Lease
A triple net lease commits the renter to pay all:
- real estate taxes,
- building insurance, and
- maintenance on the property.
These three (3) nets are in addition to normal fees, like rent and utilities. Signing a lease agreement that includes the three “nets” means you’ll be unnecessarily committed to paying additional, and varying, costs.
Sometimes additional fees are included, such as those for maintenance and repairs for common areas. It could also include pay increases for employees or contractors, even costs for major repairs or maintenance. Signing a lease agreement that includes these unanticipated fees could leave you with large, unexpected checks to write.
Utilize an Attorney with Commercial Lease Experience
Signing a commercial lease agreement commits you and your business to large, long-term payments. It’s not a decision to be taken lightly. While the above commercial lease negotiation pitfalls will give you some of the more basic things to look for when signing a lease agreement, it’s always best to consult an attorney who can ensure your best interests are considered and protected. The attorneys at Bennett Weston LaJone & Turner, P.C. have been helping businesses successfully negotiate their commercial lease agreements for years.