Congratulations! You have started a business, a new location or chosen to expand your company. If you have identified potential business locations, it is time to begin to look at leasing the office space. Renting commercial office space is a big financial commitment for your business. A commercial lease can be a large document filled with many complicated terms. While it is easy to be overwhelmed by the lease, it is crucial to thoroughly review and evaluate the lease so that the terms are understood and meet the needs of the business.
It is essential to have an attorney assist in the review and negotiation of a commercial lease. Understandably, a new or small business is concerned about spending money on legal fees in addition to all the other costs involved in owning a business. A lawyer can assist you in protecting your rights, understanding the lease terms and can save costs in the long run.
1) Lease Term
The lease is a contract. When it is signed, the business must comply with the lease provisions for the length of the contract. It is important to know when the lease begins, ends (including notice requirements and penalties for early termination) and the terms of any options to renew the lease.
Often, a lease may include “tenant improvements” for the space. It is suggested that the commencement of the lease begins when the premises are ready for occupancy. Otherwise, if the work is not completed when the lease is to begin, the business will have to pay rent when it cannot move in. It is recommended that the lease provide for protection to the tenant if this situation occurs.
A commercial lease typically includes terms related to rent and allowable increases and how these amounts are calculated. Any business needs to understand current and future costs. Negotiation of rent and related terms can attempt to understand and plan for future costs and anticipated cash flow for the business. It is important for the business to be able to afford the rent and associated costs for office space.
3) Common Area and Building Operation Costs
A tenant should pay particular attention to commercial lease terms about these common area and building operation charges. These charges may be inserted into a commercial lease to be paid by a tenant in addition to rent. These costs can include insurance, real property taxes, and maintenance costs. Alternatively, a landlord may charge a tenant for these items separately. A tenant should understand who will maintain and repair the premises, including the heating and air conditioning systems, electrical, plumbing, roof and other systems.
4) Tenant Improvements
Frequently, the commercial lease includes terms that the premises are to be modified for the business. The lease should be clear about who will pay for the modifications to the space and who own the modifications and fixtures after the lease ends. Tenant improvements can be a costly part of moving into commercial space.
Remember that the Americans with Disabilities Act (ADA) contains requirements for specific businesses to have premises that are accessible to disabled people. Understand who pays for any needed ADA related modifications, if any.
5) Security Deposit
A security deposit is the amount that the tenant must put pay, which is held by the Landlord in case the Tenant does not pay its obligations under the lease. The Landlord may want the first and last month of rent. The Tenant must understand the circumstances for return of the security deposit. The deposit must be factored into the amount the business will have to rent the space.
Hire an Attorney to Protect your Business
There are many additional terms that can be found in a commercial lease. It is highly recommended that you retain the services of an experienced attorney to help guide you and assist with understanding and negotiation of a commercial lease to protect your business and attempt to avoid future disputes.
Lisa Wills of the Law Offices of Lisa D. Wills is a skilled real estate law attorney in Pleasanton, CA. To speak with Lisa Wills, Law Offices of Lisa D. Wills about your real estate and business concerns, call (925) 463-9000 or send an email.