Before signing a commercial real estate lease, there are a few things a small business owner should know. Whether you’re setting up a retail location or an office, you should make sure that the terms of your lease won’t end up costing you later.
Limit your liability
As The Blog for Business Law points out, all commercial leases contain language that makes the tenant liable for the condition of the property after they vacate the premises. Just like with residential property, a tenant can be charged for both serious damage and any alterations they made. So, if you need to make any modifications to the space so that it can meet your needs, say the installation of a lighting fixture or cabling for high-speed internet service, make sure they are listed as exemptions in the lease. Also make sure it’s specified which party will be responsible for regular maintenance and repairs.
No signage, no deal
Another important thing to consider before signing a commercial property lease are its signage terms. If you’re opening a retail location, it’s essential that the public be able to identify your establishment from the street. Getting locked into a lease that severely curtails your ability to put up signage will have a large negative impact on your sales. If a lessor’s terms will limit your advertising opportunities, find another lessor. There’s no sense in putting up roadblocks to your company’s success.
Even if your business is doing so well that Apple gets jealous, don’t sign a long-term lease. As explained in this Nolo article, commercial property leases aren’t as easy to break as residential rental agreements. If you agree to a ten-year or five-year lease, you’re legally bound to shell out cash until the rental term ends. If your business takes off and you need to expand, a long lease will give major cash flow headaches. If your business hits a rough patch, you might have to dip into your personal finances to pay the rent. Negotiate a reasonable lease term with an option for renewal so you’ll have more options for the future.
Watch out for the escalation clause
Lastly, it’s crucial that you understand the conditions of your lease’s escalation clause. In commercial realty, an escalation clause refers to the allowable increases the lessor can make on a tenant’s rent. If you’re not careful, you could see your rent double, triple or even quadruple over the course of your lease term. You could end up being the owner of a failing business with a 50 percent profit margin. Because of the inherent risks involved with commercial leasing, you should consider hiring an experienced property attorney to examine your rental agreement before closing the deal. After all, you’re better safe than bankrupt.
This article was written by Mario McKellop of Examiner.com for CBS Small Business Pulse.