Read the Fine Print Before You Sign a Commercial Lease
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3. Do you plan to make improvements to the property?
Make certain you have cost estimates based on architectural drawings, for all improvements you plan to make to the property.
Does the local municipality require permits? Will you need to have a Certificate of Occupancy (C of O) to open your business?
If these are local requirements the tenant should not commence rental payments until the work is completed and there is a C of O from the local authority. You should try to get the landlord to make the improvements and deliver the premises ready for use.
If major changes will be made to the leased space and the tenant is responsible for those changes, the landlord should agree to long term extension options that the tenant can exercise at will.
4. The Lease term
If you are seeking funding from a lender for this business expansion that will include capital improvements, the term of the lease, including lease extensions, must match the term of the loan.
5. Lease Guarantees
Most leases require a guarantee signed by the business along with personal guarantees of stakeholders with 20% of more interest in the company. This guarantee should be included as a liability on a personal financial statement.
6. Other minor line items to be addressed:
adequate available parking and charges relating to parking for staff and clients, extended hours of operation, and special signage.
Don’t execute the lease until all your concerns have been discussed with management and not solely the broker who was hired as the rental agent for management.
Don’t let your enthusiasm override your negotiating skills. Signing a bad lease can destroy a solid company.
Once you are able to fully understand the lease terms and are able to comprehend the financial commitment in absolute dollars, you should make a comparative analysis considering ownership vs. leasing a property.
This option should be discussed with an unbiased professional to determine what is best for the company and the company’s major stakeholders.
Related articles:
Decided on a Business Lease? 20 Lease Provisions
Small Business Owners Need Advocates for Commercial Lease Negotiations
