05/ 05/ 2006
by Beth Gaudio
What to look for before you sign a lease
If you're like most small-business owners, your business is located in leased space. When it comes to commercial leases, keep one thing in mind: Leases are binding contracts. Don't assume that you'll be able to change the agreement without extra cost and hassle. And unlike residential tenants who benefit from generous state protections, the rights of commercial tenants are almost entirely defined by the specific terms of the lease. This means that the lease you sign today could affect your business' bottom line for years to come. Consider these three points before you sign your next lease:
1. Negotiate your lease agreement. Any standard lease that a landlord offers you is more of a landlord wish list than a reflection of what a typical lease looks like. It is merely the opening offer in a negotiation process. Take at least one day to read the lease-all of it. Try to think of everything that could possibly go wrong and then see how the agreement would deal with that situation.
2. Focus on the small print. Don't just focus on rent-usually calculated by square foot-make sure you consider other terms that will also cost you, such as:
- Parking. How many spaces? Who maintains the lot?
- Option to renew. How will future rent be determined?
- Competition. Is the landlord prohibited from leasing space to a competitor?
- Can you cancel the lease if your business fails?
- Security deposit. When is the deposit returned, and who gets the interest?
- Signage. Is it permitted? If so, how big and who will pay?
- Americans with Disabilities Act. Is the building in compliance, and who pays if it's not?
- Building services. Who is responsible for cleaning, maintenance, heat and air conditioning?
- Tenant improvements. What improvements are to be done and when?
- Defects. Is your rent abated (reduced) if there are defects or construction delays?
3. Make a plan for resolving disputes. Even if you've negotiated significant improvements in your lease, you still might have disputes with your landlord. Try to resolve them without going to court. If you've been dealing with the management company, go directly to the owner. You may also want to consider mediation. (Your lease might even have a mediation clause.) If you can't resolve the problem, check with an attorney. Remember that taking things into your own hands without legal advice-like withholding rent-can get you in a worse situation than you're already in.
Beth Gaudio is a staff attorney with the NFIB Legal Foundation, www.NFIB.com/legal. This article is intended to provide general information for reference only and should not be considered legal advice.
