Business owners need to be the Swiss knife of professionals. They need to understand the business they are in and the many issues that affect and surround it. One of those items is commercial real estate lease contracts.
Business owners must know the basics of commercial lease contracts to avoid unsavory experiences.
Residential vs. Commercial Real Estate
Notably, commercial real estate lease contracts are different than residential contracts. Business owners may find it surprising that they will have fewer rights and remedies when signing one. The law assumes the parties signing a commercial lease are more sophisticated than the average individual and are less prone to be victims. Ideally, that should be the case. Therefore, while finding a good commercial place for your business, the business owner needs carefully consider all the lease provisions.
“Once a commercial real estate lease contract is signed and problems arise, the tenant has few options to remedy her/his situation.”Attorney Marcos E. Garciaacosta
Important Provisions in Lease Contracts
Among the things business owner-tenants need to consider are:
1.-Duration of contract. How long will the commercial real estate lease contract last?
2.-Options to renew the lease at the market rate. Is there a provision to renew the lease at a reasonable rate?
3.-Options for contract termination. What happens if the business is unsuccessful and needs to close before the commercial lease ends? It is better to prepare for this eventuality to cause minor damage possible.
4.-Rent Default provisions. Will there be notifications when the lease is due (such as written notice when the rent is late) and ways to remedy the situation with no damage to the tenant?
5.-Maintenance or “CAM” charges. Consider what extra maintenance charges the tenant will incur for operational expenses in the shopping center. Are these fees raised on an annual basis?
6.-Adaptations to business activities. This issue is one of the most frequent with new business owners. Is the office, restaurant, salon, etc. space adapted for the business activity? Imagine the cost for a business owner to add water lines to convert former office space into a hair salon. It may take months, or even years, and significant investment. Modifications to commercial real estate are more critical with a shortage of qualified contractors.
7.-Exclusivity clause. The business owner can request exclusivity to avoid competition nearby. Will it be another similar business in the same shopping center?
8.-Noise and nuisance. Is the commercial property near a business that may cause problems, such as a nightclub? Or the closeness won’t be a problem due to hours of operation?
9.-Tenant modifications and improvements. Does the landlord allow changes to the commercial property, and what is the extent of the changes? Does the owner provide funds for improvements?
10.-Personal guaranties. It is wise to limit any guaranties to business property compared to personal property that may damage credit and personal assets.
Hire a lawyer to review your commercial real estate lease contract
“Budding entrepreneurs need to be careful on what they are signing and the consequences of their commitments,” indicated business attorney Marcos Eduardo Garciaacosta. “Once a commercial real estate lease contract is signed and problems arise, the tenant has few options to remedy her/his situation.”
Importantly, you want to hire an expert business attorney to review the contract before signing. Our firm is always ready to guide our clients in making the best decision for their business enterprises to maximize their investments and control risks. Call us for a free consultation at (480) 324-6378.