Read These Tips Before Signing a Commercial Lease

Small Business - September 4, 2017
Commercial lease agent handing the keys to a business owner signing a building lease

Leasing a retail or commercial office space is a significant financial commitment for small business owners. Breaking a lease or disputing the terms of a lease after you sign can be costly.

It’s vital that you understand the terms of your lease and contact your LegalShield provider law firm before signing. If you have any questions about leasing commercial retail or office space, call your LegalShield provider law firm today.

  1.     Understand the various types of lease agreements. There are several types of commercial lease arrangements and the terminology may be confusing. It is important to fully understand exactly what you are responsible for paying and what services the landlord is required to provide.
    • Full-Service Lease or Gross Lease – These leases typically include expenses like insurance, maintenance, utilities and taxes. The advantage for business owners is that monthly expenses are predictable and you only make one payment.
    • Modified Gross Lease – Modified gross leases still require one lump sum for rent but may exclude specific services like cleaning or utilities, which you would be your responsibility.
    • Single Net – The single net lease requires the tenant to pay for utilities and their portion of the property taxes. Other expenses are covered by the landlord.
    • Double Net or Net-Net – Tenant pays for insurance, utilities and taxes, while the landlord handles building repairs and maintenance.
    • Triple Net Lease (NNN Lease) – In a triple net lease, the tenant is responsible for taxes, maintenance and insurance.
  2. Determine a reasonable lease term. New businesses generally should stick to one or two-year leases. Starting a new business is uncertain and breaking a lease is both complicated and costly. Your lease should also include an option to renew.
  3. Location is the most important aspect of storefront real estate. Research the area thoroughly before signing a lease for a commercial storefront. Is the location easy to find and access? Are the interior and exterior visually appealing? How close is the location to your competitors? An exclusivity clause in the lease prevents the landlord from leasing other spaces on the property to competitors.
  4. Consider the cost and responsibility of maintenance and upkeep. Unlike residential leases, some commercial leases require the tenant to perform maintenance and cover repair costs. If you will be responsible for these costs under the terms of a lease, a thorough property inspection should be completed before you sign the lease.
  5. Consider the worst-case scenario. What will happen if you are unable to pay rent? It is important to understand the default process as outlined in your lease. Does the lease allow for additional negotiation with the landlord? Are there additional fees for default beyond the amount owed?
  6. Include the option to sublet in the lease. A sublease provision will allow you to lease the space to another business. The option to sublease will give you an alternative to default should you be unable to maintain the lease.
  7. Have your LegalShield provider law firm review the lease before you sign. Your attorney will explain the lease’s fine print and point out any potential problems.