Introduction
Are you a business owner? Is your friend a business owner? Looking to take your business out of your house and into a commercial space? This blog post is for you! When negotiating a commercial lease, there are a number of factors to consider. Most people think that they have to sign whatever the landlord puts in front of them. This could not be more FALSE. A commercial lease is effectively a contract between two parties. Just like most other contracts, there is an opportunity to negotiate its terms.
The Basics/Big 3
Rent:
- This is the amount you are paying to the landlord for your use of the space. Unlike a residential lease, commercial leases often refer to rent on a per square foot basis. (e.g. The cost of this space is $20/sf).
- What is included in "rent" will be defined by your lease, so be careful!
Term:
- The "Term" will usually refer to the overall duration of your lease. While many residential leases are for one (1) year, Commercial leases tend to be at least twice as long. Many landlords will try to get an initial term offive (5) years.
- A "renewal" option may also be included in the term. Usually, the renewal is for a duration that is identical to the initial term. (e.g. 5 year initial term with a 5 year renewal option).
Personal Guarantee
- Most people form corporations or LLC's to protect their personal assets from business related creditors. That is an excellent idea! However, most landlords will demand some form of personal guarantee from the business owner as a security blanket to keep you from simply going out of business and running off without paying rent. Unless the business has strong individual credit, and a long track record, you can expect to see some king of Personal Guarantee in your first few commercial leases.
- The first move of every landlord is to make the entire initial term "Guaranteed" by the owner. Functionally, what that means is that you (the business owner) will be personally on the hook for paying rent for the duration of the term, even if your business closes in the first or second year. If your business isn't doing well, this guarantee could force you into personal bankruptcy!
How can an attorney help me?
In any business deal, each party is looking out for its best interest. Landlords aren't inherently evil people or companies. They are simply looking to earn a return on their money, and in some cases, they will stop at nothing to do so. Youcan rest assured that your landlord either a) has an attorney on staff/retainer, or b) had an attorney write them a strong lease that is in their favor.
Having an attorney on your side during the commercial lease negotiation process is a way to even the playing field. The attorney will keep the landlord honest, and ensure you are getting a deal that suits you.
If you are getting ready to enter your very first commercial lease, please Contact Us today to set up a free initial consultation.