If you’re leasing commercial space for your business for the first time – or even if you’re not a complete novice at this – you probably have far less experience with lease agreements than the property owner who’s presenting the contract to you does. These are typically long, complex documents.
Don’t let the landlord tell you it’s “just pro forma stuff,” peruse it and sign. Think of it as a first draft. Commercial leases have numerous clauses. Many should be negotiable. Some you don’t want in any agreement you sign.
What are some of the most significant clauses?
Let’s look at some key clauses included in most leases that can make all the difference in the success (or failure) of a business. These include:
- Rent escalation: This clause typically details how often and by how much your rent can be raised. It should also state what rent increases are based on.
- Improvements: This refers to anything that needs to be done to the space before you move in and who will pay for them.
- Alterations: This refers to what changes you have a right to make to the space after you’re there and whether you need permission. “Improvements and Alterations” may be one clause.
- Use: This details how the space can be used. There may be any number of limitations, such as the type of business you can have and what kind of hours you can be open.
- Sublease: This details whether you can rent out all or part of your space to someone else. This can come in handy if you end up with extra space and want to allow another business to use it. It may also be helpful if you decide to relocate before your lease is up.
- Renewal: This details how much notice you need to give the owner if you choose to renew your lease and/or vacate at the end of it.
You may also want to include language about what your options are if you want to leave before the lease is up. You might want to negotiate an exit clause.
What you need in a lease agreement will be specific to your business and your goals. That’s why it’s always wise never to negotiate or sign a commercial lease agreement without experienced legal guidance.