Many small businesses, including those in the fashion industry, are embracing leasing properties. Compared to renting a residential property, leasing a business property involves a few more steps. This post will outline typical lease terms that investors in commercial real estate and small business owners should include or be aware of, as well as the advantages and disadvantages of the two main kinds of commercial Property leases for small business owners.
A commercial lease: what is it?
A commercial lease, for starters, is an agreement between the landlord, who owns the property, and the tenant, which is the company that uses the space. The rights and obligations of each party with regard to the property are outlined in a commercial lease.
Typical Clauses in a Business Lease
A commercial lease’s length and legalese may make it challenging to read. Here are eleven elements of a commercial lease that any small business owner thinking about signing one on behalf of their business should be able to recognize and comprehend. A detailed understanding of your lease aids in risk management and cash flow planning.
Here are some important things every small business owner should know about commercial property leases:
1. Premises to be leased
The lease must indicate which of the multiple offices, apartments, or other leasable areas on the commercial property the tenant is permitted to occupy. The lease should specify the apartment’s square footage and number. The rights of the renter to use the shared areas may also be covered in the lease.
2. Determining the Lease term
Each business lease will provide dates for the start and end of the lease period. Additionally, this condition can allow for potential lease renewals in certain situations.
3. Determining the rent amount
The renter’s right to occupy the space is contingent upon the landlord receiving monthly rent payments from the tenant. This provision may also specify the required security deposit amount and if rent will rise during the length of the lease.
4. Rent negotiation
Negotiating rent is common in commercial leasing. Be prepared to discuss and potentially haggle over the rent amount, rent increases, and any rent-free periods or incentives.
5. Triple net expenses
If you’re signing a triple net lease, understand the extent of your financial responsibility for property expenses, which can include property taxes, insurance, and maintenance. Budget for these expenses accordingly.
6. Common area maintenance (CAM) fees
For tenants in shopping centers or commercial buildings, CAM fees may be part of your lease. CAM fees cover common area maintenance and should be clearly defined in the lease agreement.
7. Lease termination and renewal
Pay attention to the provisions related to lease termination, renewal options, and notice periods. This can significantly impact your business’s flexibility and future occupancy.
8. Use clauses
Ensure the lease includes a clear and specific description of how you plan to use the premises. This can affect your business operations and any potential restrictions.
9. Security deposit
Understand the security deposit requirements and any conditions for its return. Ensure it’s specified in the lease agreement.
10. Maintenance and repairs
Determine who is responsible for maintenance and repairs. Typically, landlords handle structural and common area maintenance, while tenants are responsible for their leased space’s interior.
11. Lease negotiation and legal counsel
It’s advisable to seek legal counsel when negotiating or reviewing a commercial lease. An attorney can help protect your interests and ensure the terms are fair and favorable.
Discuss insurance requirements with your landlord. Commercial tenants often need liability and property insurance. Make sure the lease specifies insurance obligations for both parties.
13. Assignment and subletting
Pay attention to clauses related to your ability to sublease or assign the lease to another party. These clauses can impact your flexibility in managing your business space.
14. Exit strategy
Always have an exit strategy in mind. Know what it will take to terminate the lease if necessary and what penalties or obligations you may face.
15. Due diligence
Conduct thorough due diligence on the property, including inspections, environmental assessments, and zoning compliance, before signing the lease.
Commercial property leases are legally binding contracts, so it’s crucial to understand their terms and implications fully. Seek professional advice, thoroughly read and negotiate the lease, and ensure it aligns with your business’s needs and financial capabilities.