Almost all brick and mortar business owners have had to wrestle with a commercial lease. They are long and confusing and full of legalese. So there’s a tendency for small business owners to “breeze” over the words on the paper. Understandable. Business owners are moving fast and a commercial lease is not a great read.
But a commercial lease is most likely THE most important contract that a business owner signs and here’s why. First, it’s a long term commitment – financially and operationally. It’s probably the longest lasting contract that the business has, so it better be a good deal.
And I don’t just mean a good deal financially. I mean the terms regarding the use of the premises, the requirements and restrictions on signage, the amount of insurance required, the obligations for maintenance and repair – and so forth. Those terms need to be a good deal as well. Because how you run your business (or how you’re allowed to run your business) has a direct effect on your bottom line.
After you find a good location and you’re at least moderately in love with the space, think about some of the following issues (there’s so much more, but this is a good start). Here’s the top 5 common mistakes business owners make when entering into a commercial lease:
- Not Planning For Growth. How long will this space accommodate your business growth? Do you need to consider expansion rights? Under what conditions can you terminate the lease early?
- Getting Locked in and Not Being Able to Adjust. Are you able to add services/products to your business model? In other words, is the use of the premises described in such a way that you have flexibility to adjust your offerings?
- Not Realizing the Scope of the Financial Commitment. What are the “extra” items you have to pay for? Common area maintenance fees? HVAC replacement? Service fees? How is “additional rent” defined? What is the cost of the insurance required?
- Not Considering the Effect of the Landlord’s Rules. How restrictive are the landlord’s rules? Will your business fit into the way the property is managed? What are the rules on signage and parking?
- Not Negotiating the Personal Guaranty. Is the personal guaranty for the whole length of the lease term? Is there an alternative to giving a personal guaranty?
When considering a lease agreement, be sure to read the lease carefully. Keep in mind that a short “simple” lease is not always the best deal. There are many issues that may not be mentioned in the lease – and they should be.
Bottom Line: A commercial lease is too important and too long of a commitment to not take seriously. Have an experienced business attorney review it for you and if possible, have them negotiate for you with the landlord.